Reserve Bank of India Deputy Governor S S Mundra gave some startling numbers the other day: Of the 20 chief executive officers in public sector banks (PSB), one still has a vacant position. Eight of those currently in employment will retire in 2017, about 10 will retire in 2018, while one will retire the year after. Now, go down to the level of executive directors in these banks: About five are retiring in 2016, seven in 2017, 10 in 2018 and 12 in 2019. The remaining three will be retiring in 2020. That's not all. Nearly 73 per cent of the deputy general managers and general managers in PSBs, except State Bank of India, are above 55 years of age and another 23 per cent are in the age group of 50-55. Mundra summed up his speech by saying that unlike "driverless cars" India can't have leaderless banks.
But this lack of succession planning and wrong hiring policies of PSBs have been a point of discussion for several years, without much effect. In 2014, former RBI deputy governor K C Chakravarty referred to the "retirement decade" in PSBs and talked about how most banks had no clue as to how many people they needed for specific specialised functions, as hardly any detailed analysis of roles and responsibilities had been done. This is in complete disregard of basic HR work, which is supposed to map each desk function to the available manpower by imparting training to the existing staff or by recruiting appropriate people with the desirable skill sets. Also, the performance measurement system (PMS) in PSBs needs a thorough overhaul as incentivising talent with fairness and transparency is a key objective of HR managers. But Chakravarty said the PMS in state-run banks is highly subjective or impressionistic and quite often determined by factors other than actual performance at the workplace.
That's not all. Former RBI governor Raghuram Rajan also suggested that there was a need for a re-look at the hiring policies of PSBs. According to Rajan, these banks tend to overpay at the bottom and underpay at the top, making talent acquisition at higher levels challenging. In addition, they need experts in specific areas such as project evaluation and risk management. Rajan said banks could also use the opportunity offered by retirements to reorient hiring towards the skills they needed, and to offer attractive rapid career progression supported by strong training programmes to new hires -with thinning middle management, the mix of experience and capabilities should shift towards capabilities.
The report of a panel headed by former RBI executive director G Gopalakrishna had recommended setting up a centre of excellence for leadership development and a skills registry that will develop an expert pool internally and allow free movement of talent within the organisation for creation of a larger workforce of trained personnel. In the report, the committee indicated that the time for "generalist officers" could be over and suggested that banks planned their talent and leadership requirements at least five years in advance.
So, enough wisdom is already available with PSBs on what they need to do in view of the wafer-thin leadership pipeline, partly caused by the freeze on recruiting probationary officers through the 1990s. The most obvious solution is to bring in experience and specific skill sets through lateral recruitment. But look at the track record. Lateral recruitments accounted for just two per cent of all employments in PSBs in 2013-14, though the figure has improved somewhat. In comparison, close to 53 per cent of the hiring in private sector banks came through lateral recruitments.
Remuneration is of course a problem. For example, while the CEO of a PSB earns an average of Rs 18 lakh per annum, his counterpart in the private sector earns an average of Rs 3.5 crore, in addition to the stock options worth a multiple of that. So, one of the first steps needed is the removal of the practice of uniform financial incentives to all PSBs. Since each bank has its own unique characteristics and business profile, a one-size-fits-all format irrespective of the size of the banks and their intrinsic problems, is an absurd policy.
But adequate remuneration is just one part of the problem. The other is the mindset. One PSB filled up 50 of its technical posts with internal candidates in the ratio of 1:75, that is, 75 candidates were called in for interviews for every post. This is all fine, except that the interview panel did not have a single technically qualified person.
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