Monday, April 14, 2014

Will PSU bank chiefs get fixed term?

WILL the heads of public sector banks get a fixed term to give more consistency and durability to their policies? The next government at Centre may take a call on the issue as the Finance Ministry is considering a proposal giving fixed tenure to ...
chairmen and managing directors (CMD) of state-owned banks. This will ensure stability in the operations of the public lenders. Currently, only the chairperson of State Bank of India (SBI) has a fixed tenure of three years.
It has been argued that top executives appointed for a short tenure hampers implementation of medium or long-term strategies of banks.
Therefore, the government is looking at correlating the tenure with job-related performance, the report said. Now, the retirement age for top executive is 60 years irrespective of performance. Generally, the term of CMDs varies between one year and five years. Of late, the Finance Ministry turned down the Reserve Bank's proposal to bifurcate the post of chairman and managing director (CMD) in public sector banks saying this position doesn't enjoy absolute powers.
The Finance Ministry said this in response to the RBI's contention that CMDs of public sector banks enjoy absolute power along with boards.
The Finance Ministry in its reply said the board is a collective decision making unit through which major decisions of the PSU are implemented and to say that CMD enjoys absolute power and disregards the decision of the board of the bank is not factual. CMDs of public sector banks are thorough professionals, with long career in the banking sector and they are well-aware of the issues to be tackled in this segment. It can be noted that in PSBs, the top executive is designated as CMD, with the exception of the largest lender State Bank of India, where the top honcho is the chairman and there are four managing directors with clearly defined executive roles under her/him. The posts of CMD in the private sector are held separately. The RBI had set up a committee under the chairmanship of A S Ganguly in 2004-05 to study the issue of bifurcation of the post of Chairman and Managing Director in banks. The panel had recommended such a bifurcation.
Last month Rajiv Takru, secretary, department of financial services also said that the Cabinet will consider such a proposal to give fixed tenures to the heads of PSU banks. 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.
Earlier, ONGC chairman-cum-managing director Sudhir Vasudeva also batted for fixed tenure for top management of PSUs and greater autonomy to their boards to make them more competitive.  

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