Compliance officer for banks prescriptive, not right thing: Ex-SBI MD

The prescriptive way of having a dedicated compliance officer is not the right thing and by initiating such a move, which is in line with other countries, the Reserve Bank is making the compliance function as the overall incharge of a lender, a senior banker said on Tuesday.

V G Kannan, who served as the chief executive of industry lobby Indian Banks Association till recently after retiring as the managing director of SBI, said the risk function is as important and it cannot be equated with that of compliance.

Earlier this month, the RBI asked banks to appoint chief compliance officers (CCO) with a view to getting uniformity in the approach followed by lenders.

"The prescriptive way of having a compliance officer may not be the right thing. It should be left to the individual organization depending on their perception of the risks, Kannan said speaking at a NSE webinar.

He explained that some banks can be absolutely compliant even without such an officer and also made it clear that he does not wish the banks to be completely non-compliant as well.

Kannan said he had conversations with bankers from across the world in the last few years, and all of them rue that compliance is getting way too much attention and now constitutes a fixed cost because a third of the workforce is engaged in the function.

"But overall, everywhere in the world, compliance has been seen to be overriding on risk. That has to be a concern. In that direction is where our RBI is moving to see that compliance is the overall incharge of the organization, Kannan said.

Kannan said executives at state-run lenders work in very challenging circumstances as they are answerable to over four regulators, and without taking the name of the government, said there is a super regulator as well.

Very often, certain things have been put up by the formal regulator and then the other regulator sort of says no, we will sort it out etc', he said, adding that this is an aspect which requires a discussion.

There is a vigilance department which ensures that the state-run banks have to follow a process while incurring any expenditure and often it costs the institutions dearly because of the time taken, he said.

Kannan said there is no level playing field because the emoluments earned by the state run lenders are less because there is no remuneration committee as well at the board level.

Former Sebi chairman M Damodaran said there is a hyperactivity among the regulators at present, which starts with putting out discussion papers or starting a consultation exercise before putting out a final regulation.

He said there has been at least one instance the solution was worse than the problem and also questioned the tendencies to come out with guidelines despite it involving substantive changes in operation which requires a new regulation.