In a recent paper, the Reserve Bank of India pointed out that not only have public sector banks done better in promoting financial inclusion but their labour-cost efficiency is also higher than that of private banks.
Yet, to date, the most popular argument given for privatisation in public sector institutions, one which gains the most traction is — inefficient employees.
While the top brass is blamed for a sedate management style, those lower down the hierarchy are believed to have a lacklustre approach when compared with their peers in the private sector.
In this context, the newly created Financial Services Institution Bureau or FSIB, which now replaces the Banks Board Bureau (BBB), gains significance.
The FSIB is expected to play a bigger role rather than just shortlisting candidates and recommending names to the government for appointments in state-run financial institutions. When the BBB was set up in April 2016, it was expected to play a major role in ushering in radical reforms in the governance of state-run financial institutions.
To some extent, this objective was achieved with the government appointing five deputy managing directors from the country’s largest bank, State Bank of India, as chief executive officers or CEOs of other nationalised banks.
Scope for deputation
But so far it has been a unidirectional movement. Executives from larger or mid-level public sector banks also need exposure in leading banks such as SBI, or specialised financial institutions like IIFCL or even NabFid to further hone their skills. Bankers can also be deputed across financial institutions for a period of three to five years, at least at the mid-management level, to gain experience and then return to their parent bank.
It will ensure that the top leadership in the other large nationalised banks comes from within the ranks to maintain continuity.
This strategy will further pay rich dividends as the government further looks to consolidate PSBs. The cross-cultural training will help in amalgamation and some of the cultural integration issues will be largely addressed.
The FSIB, which has been empowered to advise the government on a suitable performance appraisal system for whole-time directors (WTDs) and non-executive chairman, should also look at a disincentive structure for the moderate performers or non-performers.
In the last six years, except once, whole-time directors haven’t been transferred from one bank to another. At the top management level, non-performers can be shunted to smaller banks or put at the back-end, thereby ensuring that performing candidates are given a fair chance to move upward in the same capacity from a smaller or mid-sized bank to a bigger lender. Of course, those doing exceedingly well and having the desired remaining years of services can move to higher levels in the industry. While privatisation of two state-run banks and one insurer is expected to gain steam, a more competent staff will only add value to the privatisation deal. Recent reports state that around 4,500 employees of Air India have opted for VRS. Any new buyer will also be interested in a more competent staff, a similar situation can be avoided in state run financial institutions if the existing lot is given the right exposure to stay more relevant.
PSBs as a group have done exceedingly well during the last financial year in business growth, profitability, and also in improvement in asset quality. Over the years, they have played an instrumental role in delivering banking services to the last mile. The long working hours during demonetisation and their sacrifices during the pandemic have no parallels. The FSIB can focus on building human resources both at the top and bottom to further strengthen state-run institutions.
The writer is Senior Adviser, Indian Banks’ Association. Views are personal