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Successive governments, irrespective of ideology or coalition partners, routinely kept top positions in its banks vacant for months.This time it is the turn of Narendra Modi-led NDA government to cancel all appointments of future chairman and managing directors as well as executive directors finalised by the previous government in various public sector banks.
The UPA government decided to choose the candidates in October 2013, for vacancies that will arise in the next fiscal, that is, 2014-15. For Vijaya Bank, two successive chairmen were selected. V Kannan who took charge on January 1, 2014 is scheduled to retire on 31 December this year, so his successor was also selected by the previous government in October 2013.
The selection committee for CMDs and EDs in government banks, is headed by Reserve Bank of India governor, who sends his nominee, typically the deputy governor in-charge of banking operations. The financial services secretary of the finance ministry is a member of the committee, which also has a former government bank CMD and academicians.
There are two issues with the entire process: Firstly, the referee should not be choosing the captain of a team. How can a regulator select a chief executive of an entity which is regulated by itself?
Secondly, the selection committee can only select or recommend. The bureaucrats and the minister take the decision on whom to appoint. Often views don’t match, which results in delays.
The central bank wants to refrain from the selection process, a view that has been communicated to the ministry. It also wants to withdraw its nominee from bank boards due to conflict of interest issues. The government is yet to oblige.
There is also one more element in the public sector bank chairman appointment process. It is perhaps the only appointment process conducted by the government where the results are never declared. No one knows, till the order is issued, who is going where.
This uncertainty gives rise to speculation. Hectic lobbying for a bank or for a candidate often mars the selection process.
So how is the so called fresh process by the NDA any different? It means that the ministers and their secretaries and those who matter in New Delhi's power equations will once again call the shots.
Top RBI officials often say regulation is ownership neutral, that is, irrespective of private or public sector nature of the lender. A chief executive of a private sector bank is selected by its board. And it is common knowledge private sector lenders -- be it large lenders like ICICI or HDFC Bank or smaller banks like IndusInd or Federal Bank have done exceedingly well than their public sector counterparts in most of the parameters during the post-financial crisis period.
The PJ Nayak committee – which was set up to review governance issues in banks – has suggested a three phase process in which finally the board is empowered to decide on its members and of chief executive.
The issue of governance or the lack of it in public sector banks could only be solved by empowering its board. Quick fix solutions will only delay what is the inevitable.
