Friday, March 21, 2014

Chiefs of PSU banks likely to get fixed tenure of three years

Rajiv Takru, secy, financial services along with FM Chidambaram
GOOD news for the heads of PSU banks! The finance ministry is mulling a proposal to give the chiefs of all public sector banks a fixed tenure of three years. This was disclosed by Rajiv Takru, secretary, department of financial services in an interview to a leading financial daily.
Currently, only the chairperson of State Bank of India (SBI) has a fixed tenure of three years.
The move is likely to allow for greater planning and ensure higher management accountability in the functioning of the lenders, which account for three-fourths of the Indian banking industry’s assets.
If the finance ministry proposal is approved and eventually gets cabinet nod, all public sector bank CMDs will be...
appointed for a fixed three year term, irrespective of the years of service left. To be sure, the finance ministry may have to wait for the next government to be in place after the April-May general election to implement the proposal.
“At present, the chairman and managing director (CMD) of a public sector bank has only a short tenure and there is pressure on him to do something ‘extraordinary’,” Rajiv Takru, secretary, department of financial services, told a leading financial daily, referring to the likely pressure to implement plans in a hurry. “In the private sector, the tenures are very long and they do not have the ghost of retirements (haunting them). SBI chairman and RBI (Reserve Bank of India) governor also have three-year tenures. We are looking at the option of giving bank CMDs a fixed tenure of three years,” he said.
At present, most public sector bank bosses can serve only one or two years at the helm before retirement. For being eligible to be made a bank CMD, a candidate should have a residual service of two years and at least one year’s experience as an executive director. Often it is observed that the government relaxes both the criteria to ensure there are a sufficient number of candidates to choose from.
The SK Roongta Committee on reforms in central public sector enterprises (CPSEs), set up by the Planning Commission in 2010, had also recommended that heads of CPSEs be given a fixed tenure of three years.
Takru said an extended tenure may also help ensure that a sudden jump in the non-performing assets (NPAs) of a bank upon the arrival of a new chairman may not happen,
“There can be only two possibilities for the sudden increase in NPAs after there is change in the top. Either the previous chairman was doing window dressing, which is now not easy after RBI has come out with system-generated NPA software, or the new chairperson is trying to make an impact to show what a bad situation he or she has inherited and how they are going to rectify it,” Takru said. The Indian banking system is loaded with stressed assets. Gross NPAs of 40 listed banks that have announced earnings for the December quarter rose 36 percent to Rs.2.43 trillion from Rs.1.79 trillion in the year-ago period. About Rs.2.07 trillion of loans is being recast by Indian banks through RBI’s so-called corporate debt restructuring (CDR) mechanism, as of December 2013, which involves lenders writing off some debt and rolling over some more.

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