Money & Banking

Why the decision to allow private sector honchos to head 2 PSBs is bold but risky

NS Vageesh Mumbai | Updated on January 23, 2018

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Restoring morale, finding right people in middle management are among challenges they will face

The Centre’s move to induct two CEOs from the private sector into two major public sector banks (PSBs) as part of its plan to revive government banks is a bold step with all its attendant risks. PS Jayakumar and Rakesh Sharma are being appointed to head two major public sector banks — Bank of Baroda and Canara Bank, respectively.

If the government had chosen to induct them into one of the smaller banks, it might have hardly created any ripples. The fact that they are being asked to head two of the largest banks in the government sector (with international operations and a number of subsidiaries) has raised some eyebrows.

Even those public sector bankers (General Managers and Executive Directors) who ascend to the top job in another bank find that the transition is not very easy.

They tell you that it takes anywhere from six months to a year to get a grip on what is going on in the new bank. Some CEOs have failed because they couldn’t get along in the new bank — although the upside, if you can call it that, is that the tenures hitherto have been mercifully short.

Immediate challenges

What are the immediate challenges that these new CEOs will face? First is the poor state of the economy, which is yet to show a clear sign of revival and, consequently, contributes to tepid growth in new loans and large accumulation of bad loans.

Second, they need to find the right people in middle management and build a future-ready cadre.

Third, they need to raise capital to fulfil regulatory requirements.

Fourth, they need to restore morale and, of course, breathe new life into these institutions that have remained headless for quite some time. This would be a handful for anyone.

Procedural hassles

What makes it more challenging, a retired top banker said, is the requirement of procedures taking precedence over results, which is ordained by the government on all PSBs. This cannot easily be understood and followed by an outsider, he said.

For example, even for procurement of small things, a PSB has to go through a tendering process and give it to the lowest bidder. Should there be a deviation in procedure, even if it ultimately proves beneficial, the bank’s senior management will have to face vigilance queries.

Moreover, for all government schemes, PSBs are required to deliver results, Jan Dhan scheme being only the latest example. The challenges that await these two can well be imagined — and the learning curve will probably be steep.

There are some repercussions for those in the middle management at these banks because of the induction of outside talent at the top. For some, it may seem as though their career progression plans are prematurely closed.

Their morale, already a bit battered, may now suffer a bit more, at what is an implied rebuke of their operating style and competence for the top job.

This could well occasion some churn at those levels and may heighten the problem of the missing middle management that many public sector banks already grapple with.

The possible negative fallout of this experiment to get private sector CEOs may have been realised by the government and that is why it probably decided to do this as a limited experiment.

Financial Services Secretary Hasmukh Adhia said in an interview to this paper that the next round of appointments will be only from the current pool of Executive Directors in public sector banks.

Deserves fair trial

Despite the many downsides to this experiment, it marks a leap of faith by the government and deserves a fair trial.

The fact that the two gentlemen in question have refused market-related compensation and has decided to take it up purely as a professional challenge, fetches them some brownie points and will add some heft when they try to boost staff morale.

Certainly, the bank staff will have one less issue to gossip about, and the two have started on the right note — emphasising their commitment rather than their price.

Published on August 17, 2015

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