“Everyone working in the bank should aspire for my position at some point. If that’s not going to be possible, then I have failed in my duty as a CEO, and the bank has failed in its journey as an institution.” This was a bank CEO’s response when asked about the preparedness on succession planning when his term at the bank concludes soon. The CEO didn’t want to be identified nor wanted to comment beyond this.

Succession planning is increasingly becoming a point of debate for banks. This is not because there is a dearth of talent, but the amount of glare that this topic gets at all levels — internally starting with the human resources management team, at the board level, and with the regulator. A few weeks ago, a news report that Kotak Mahindra Bank has been asked to look out for an external candidate to fill the MD & CEO’s position after Uday Kotak’s term concluded in December this year, reignited the debate on whether an internal or external candidate is best suited to succeed Kotak.

Banks need to submit at least three potential CEO candidates to the regulator four months prior to the conclusion of the incumbent’s term. The unwritten practice is that the names are a combination of internal and external talent. From a human resource management perspective, succession planning could possibly be one of the trickiest parts to handle, and whatever turns out to be the final decision, a reasonable bit of attrition is something that is unavoidable. The challenges could compound if an external hand comes into play. But what’s less talked about most times is that even for the external candidate, it’s not an easy choice to lend their name to the CEO list.

Not so easy

For one, Vimal Bhandari, a career banker and Executive Vice-Chairman, Arka Fincap, says it triggers stability-related issues. The process of finalising and announcing a successor could take 4-6 months, and given the interest around this subject, names tend to start floating around. For instance, Rajiv Sabarwal, Managing Director, Tata Capital, was seen as a potential suitor to Romesh Sobti at IndusInd Bank, and Zarin Daruwala, India CEO, Standard Chartered, at RBL Bank.

“Many potential candidates are reluctant to be considered for CEO position as they feel that if their names come out prematurely, their position in the current organisation could get compromised,” says Bhandari. Once the names start doing the rounds informally, reasonable time and effort gets spent in assuaging these lunch table and water can talks. “Why would someone want to jeopardise their standing with their current employer,” said senior executive of private bank. Recently, Federal Bank had to issue a formal statement to clarify that Shalini Warrier, the bank’s executive director, was not in talks for the top job at South Indian Bank.

Bhandari points out another roadblock for these external candidates — longevity. “Another issue which candidates take into consideration is length of tenure as there is a feeling that maybe they will get only two terms of three years each,” he explains. “This impression needs to be dispelled as the Boards and the regulator must be willing to look at longer tenure based on overall performance.” After all, boards do look for stability in the top leadership level and this assurance needs to be given to any candidate, especially if roped in from outside of the bank, to consider the CEO’s position favourably.

Making the choice

Banks in India have had a healthy mix of both instances. Government-owned banks, barring State Bank of India and more recently Bank of Baroda, have looked at senior executives from other banks to fill the CEO position. Some of the mid-sized private banks in 2009-10 had to look outside (or overseas) talent for the top roles because of the existential crisis they were going through. They needed strong hands such as Shyam Srinivasan and Murali Natarajan, CEOs of Federal Bank and DCB Bank, respectively, to put these banks back on the map.

Barring PJ Nayak who came from the UTI background, Axis Bank has always looked at external hands to fill the corner office. Likewise, when it came to damage control, the RBI was comfortable having an external talent doing the job at RBL Bank and YES Bank. 

Stable ships, on the contrary, preferred internal candidates. Crisis or not, ICICI Bank has always had career ‘ICICI-ian’ for the coveted post. Same goes with HDFC Bank and IndusInd Bank.

There’s a reason for this. One of the biggest transformations in the banking sector in the last seven years is the constant pursuit for succession. “Unlike a few years ago, banks don’t engage with headhunters at the nth moment now. There’s constant engagement with recruiters, even to understand the depth of the current leadership team,” said a senior executive of a search firm, which closely works with large- and mid-sized banks.

Bhandari agrees with this. “Most boards work on succession planning and people within the bank get assessed and groomed accordingly.”

If that’s the case, continuity or a rehaul should be the first check box to tick while making a call on who should succeed the current CEO. When the going is good, why bring in an outsider to test the model. Likewise, if there are missing cards to fill, the board and the regulator shouldn’t continue with an insider, just so that it doesn’t send out a ‘wrong signal’.

As much as processes may have evolved, banking is and may continue to remain a people-centric business, with the person on top tasked with the job of taking the ship together.

The debate over an insider versus outside isn’t valid without the context being set right. It should be a process of proposal and ratification, considering the best interest of the bank. “The board should take the responsibility of grooming leaders and the RBI should ensure that the names suggested satisfy the fit and proper criteria,” says Bhandari.

Let both tracks run parallel, rather than make a choice between an insider or an outside.