Given that executives of public sector banks face complex challenges, the Banks Board Bureau (BBB) is working on designing compensation packages that are comparable to those of their counterparts in private sector banks, Chairman Vinod Rai has said.
It also proposes to introduce executives to the requisite domain knowledge and experience in handling banking institutions.
“Bank boards need to focus on long-term business strategy, risk management, IT applications and the required degree of oversight to facilitate a well-calibrated recovery from the present imbroglio,” Rai said.
He was delivering the convocation address at the 12th convocation for diploma in banking and financial services at the National Institute of Bank Management in Pune.
Pointing out that banking activity had become both complex and competitive, attracts the best professionals and compensates them handsomely, Rai said, “To transform the present challenges into opportunities for advancement and improvement of our banking capability, we need to innovate on compensation packages for public sector banking executives. If they have to face complex challenges, and do so in the face of competition from foreign and other entities, their efforts and capabilities need to be adequately rewarded and to some extent, at least, be made comparable to similarly placed executives in the private sector.”
Acknowledging that the public sector has limitations on compensation packages per se, Rai observed that an adequate reward structure around ESOPS, performance-linked incentives and other benefits can be designed to attract the best talent to the public sector.
“The Banks Board Bureau will apply itself to ensure a level playing field for the top echelons in the public sector, who are often called upon to take major banking decisions having social or infrastructure-related overtones. They deserve to be adequately compensated and we are committed to innovating solutions on this score.”
Calling the present the ‘renaissance’ moment for Indian banking, he told graduating students that as the principal drivers of this movement in Indian banking, they had to focus on building a strong and stable sector, premised on an edifice of transparency, ethical practices and professional, people-friendly culture.
“I consider this a renaissance moment as gifted with macro-economic stability. We need to strive to bring about structural changes so that stressed assets of the kind that we are currently experiencing becomes a thing of the past,” he said.
Rai, however, warned that while the banking sector had seen considerable stress in recent years, the cacophony of uninformed voices should not be allowed to debilitate the decision-making capability of bank executives.
Similar problems were faced in the late 90s after the South-East Asian crisis, he argued, adding that Indian banks underwent challenging times, but emerged stronger.
Projects can face time and cost overruns and problems can often stem from global causes, but these need not be magnified to create a backlash, wherein banks become risk-averse.
“Caution and prudence in banking activity can hardly be over-emphasised. However, not all loan defaults are wilful and not all lending activity, even if it is to salvage such stressed accounts, can be branded as corrupt practice or criminal misconduct. It is this precaution that we will have to take not to create a larger scare in the sector,” Rai urged.