The government’s move to grant public sector bank (PSB) wholetime directors (WTDs), including the MD and CEO, a term up to 10 years may lead to stagnation at the top management grade (TMG) in these banks, say experts.

While PSBs will see stable leadership at the top following an amendment to the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970, officials in TMG—general managers and deputy general managers—may be stuck in the same grade for long periods due to a lack of wiggle room at the top.

Senior bankers underscored that the amendment comes at a time when WTD positions in PSBs have come down following consolidation in the sector. The number of PSBs has shrunk from 27 in March 2017 to 12 in April 2020 due to consolidation.

Demotivating factor

Stagnation could be demotivating for TMG officers and affect their performance, according to banking sector experts.

“People working at lower levels might not be sure when their turn will come to become ED or MD, as the longer term for WTDs creates uncertainty. Any long tenure for a WTD demotivates lower-level staff as the opportunity to go up is blunted,” said banking expert V Viswanathan.

He observed that risk policies call for changes in business strategies at frequent intervals, at least every year. However, under the same MD and EDs, this may be the first casualty.

Viswanathan said: “Concealed NPAs and short provision might not come to the fore as the government holds maximum shares and the annual general meeting might not be as active as in private sector banks. This happened in the past and surfaced only when new WTDs occupy office.”

As per existing policy, a WTD, including the Managing Director, shall devote his whole-time to the affairs of the nationalised bank and shall hold office for such terms not exceeding five years as the Centre may, after consultation with the Reserve Bank, specify and shall be eligible for re-appointment.

As per the amended policy, a WTD, including the Managing Director, shall devote his whole time to the affairs of the nationalised bank and shall hold office for an initial term not exceeding five years and extendable up to a total period, including the initial term, not exceeding ten years, as the Central Government may, after consultation with the Reserve Bank, specify, and shall be eligible for re-appointment.

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