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Last Updated : Jun 08, 2015 08:08 AM IST | Source: CNBC-TV18

Will eminent chairmen at PSU banks make a difference?

M Damodaran, Former Chairman, Sebi says the problem with public sector banks has been the perceived lack of empowerment, backseat driving, remote control, inappropriate selection process over the last several years. Those problems can be fixed without tinkering with the structure, he says.


Bank of BarodaPunjab National Bank and Canara Bank have been headless for a while now (6-11 months). Syndicate Bank, Oriental BankAndhra Bank and Bank of India can also be added to the list. Post the retirement of their CMDs, the government split this post into MD, CEO and non-executive chairman.


Former finance secretary Sumit Bose could be the new chairman of Punjab National Bank, GC Chaturvedi, who has been a petroleum secretary in the past, is tipped to be the new chairman of Oriental Bank of Commerce.


TN Manoharan, who is on the board of Tech Mahindra, and is one of the key people who were brought on the board of the troubled Satyam Computers by the government, may head the Bangalore-based Canara Bank.

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Ravi Venkateshan, the former Microsoft India head and director on the board of Infosys, is likely to be the new Bank of Baroda chairman and G Padmanabhan, who just retired from the board of RBI, may be Bank of India's next chairman. Former Corporation Bank CMD B Sambamurthy is on the shortlist for Andhra Bank's chairman post. Bank of India's former chairman and managing director M Balachandran is being considered for the chairman position in Indian Overseas Bank.


The government is also contemplating more changes largely on the lines of the Nayak Committee's recommendations. First a competitively selected MD and chairman and then a professional board. The February Budget had provided for setting up of a Bank Board Bureau that will in turn appoint these board members, but all this is yet to happen. But will the changes made so far begin to make a difference to the hard-pressed public sector banks which are now drowning in bad loans.


M Damodaran, Former Chairman, Sebi says the problem with public sector banks has been the perceived lack of empowerment, backseat driving, remote control, inappropriate selection process over the last several years. Those problems can be fixed without tinkering with the structure, he says.


AK Purwar, Former Chairman, State Bank of India, too, says even in the present situation, the organisations will be run and managed by the Managing Directors who are proven professional bankers. He says the problem with the current structure is that most people have very short tenures of just 2-3 years in which they are supposed to have a vision, initiate measures to take the organisation to the next level and provide leadership and make the change happen, which is a lot to achieve given the short duration.


Purwar hopes that these new eminent people with proven integrities are given longish terms.


Below is the transcript of M Damodaran & A K Purwar’s interview with Latha Venkatesh on CNBC-TV18.


Q: Do you think the kinds of chairman whose names are coming out of the government are going to make a difference to the boards as well as to the banks?


Damodaran: Let me make two prefatory statements, the first is that the theory of corporate governance requires that the position of the Chairman and Managing Director (MD) should not reside in the same individual. Secondly is that all the names one has heard, these are persons of proven integrity. These are persons of merit and of competence. That said, is this the right thing to do, I am not so sure.


The problem with the public sector banks has been the perceived lack of empowerment, the backseat driving, the remote control, the inappropriate selection process over the last several years. Those problems can be fixed without tinkering with the structure. That is my initial response.


Q: Don’t you think the chairman of this eminence, chairman who is known people for their integrity and their proven track record would at least be able to prevent too much middling? Middling may still be there, but they may be able to stand up if their Managing Directors came and complained to them that they are under pressure and to use their good office. These gentlemen would at least be some kind of a bulwark?


Damodaran: We are talking about having a part-time Non Executive Chairman. Create that position and man those positions with the imminent individuals that you mentioned. What is going to be the role as a part-time Non Executive Chairman? How much are they going to be able to get involved in their nitty-gritty of banking and to ensure qualitative improvements on a continuing basis?


Secondly, the question that you asked about pressure, I think you need to deal with pressure at the source. Where does pressure come from? I don’t imagine that pressure will seize, it could be less than we have seen in the last decade but there would be phone calls, there would be people that lean on the Managing Director.


Is he like a small school boy going up to the chairman and complaining that he is getting pinched by the person sitting in the desk. Is that the kind of MDs that you are going to select? You must have MDs that standup to pressure or should be asked to go home.


The job of an owner is to select the right management and leave that management to run the organisation. If the management doesn’t deliver, ask them to go home. It is not to look over the shoulder on a continuing basis as has happened some years ago. It is also not to tinker with structures.


What you are doing now is in the name of dealing with a single power structure; single point of power inside the boardroom. You are in a sense disempowering the leader and to think that part-time people will be able to deal with this, I would much rather have these eminent men mentoring middle-level officers in the organisation to groom the leader for the future. That I think is what men of such eminence should be tasked to do.


Q: Would you agree that they will make some difference to the situation? There are some people who think that ex-administrators, ex- IAS officers must be very good men, but can they run a commercial organisation? Will they think profit and loss?


Purwar: Let us look at it little differently. These eminent people of proven integrity have been selected to provide part-time Chairmanship to a different organisation. My personal belief is that even in this situation the organisations will be run and managed by the Managing Directors who are proven professional bankers.


Now what is happening in the banking system is that lot of people have very small-term of twp to five years. Four to five years is rather an exception, mostly two to three years. Within these limited timeframe, a person is supposed to have a vision, supposed to initiate measures to take the organisation to next level, provide leadership and make the change happen. Unfortunately, in organistaions history shows that two to three years period is a very small period. I hope these people will have longish-term.


Q: At the movement, it is advertised just for 3 years term for the MDs.


Purwar: I am talking about Chairman and I hope that these people have longish term. If you ask me can they provide a visionary leadership to these banks and institution, I think it is a question to be debated - very difficult and too early to say.


Q: Good Chairman who are Non-Executive don’t really lie eyes with the organisation much you think?


Purwar: They do lay eyes, but whether they would be perceived as visionary leaders, provide effective leadership to the institutions to take it to next level, , look at 21st century banking, I don’t know.


Q: Not even a marginal difference you think?


Purwar: Are we looking for marginal difference?


Q: I agree. Are we at least moving forward is what I am asking?


Purwar: I would simply look at the present arrangement as something which is being attempted. Perhaps this is being tried and the system is getting evolved. Government is perhaps thinking that let us give this chance.


Q: Here you don’t have a complaint with them being administrators? You wouldn’t want them to be men from industry like more of the Venkatesan’s and more of the Manoharan’s rather than more of IAS officers? Would that be an argument?


Purwar: Banking is an extremely sophisticated business. People having spent their lifetime, even at every stage, have to learn.


Q: Is this good enough start?


Purwar: I would say it is a start and let us give it a fair chance. Let us see how things evolve. However, if we are looking for taking the banking system to developed countries levels, there are issues and challenges.


Q: The more important selection as we have been talking would be of the MD’s. At the moment, in the second round of advertisements, the eligibility criteria has been expanded to 45-57 years. 15 years experience in the banking industry itself and one year board level experience. Do you think that this start to make the selection itself competitive and not just a normal ED being promoted as MD is a good start? Will we get at least competent of competent people with this process?


Damodaran: Let me respond to your first question which you asked some time ago which is would generalist IAS officers make good chairman? One of the much lauded governors, for good reasons, governors of the RBI in recent times was a former IAS officer called Dr. YV Reddy. Therefore, let us not, because of some prejudice, believe that persons who come from a certain background are necessarily under qualified for any important job.


That said, to get to your question on the selection process for managing directors, let’s try and understand what the problem is with the public sector banks? The first problem is they suffer from a lack of level playing field. Because they suffer from a lack of a level playing field and because of the additional restrictions imposed on their leadership, they are not able to manifest whatever leadership qualities reside in them to an adequate extent.


I do not believe that given the size of public sector banks, you cannot find enough leaders to manage them and that you have to look outside to the private sector. It is not as if the private sector is the repository of all efficiency because efficiency is ownership neutral and you have seen a number of private sector banks and other private sector institutions come to grief.


Is governance very high in private sector banks? I can give you any number of examples that will keep us here till tomorrow including people that walked out on the boards because they were unhappy with the recommendations of the nomination and remuneration committee. So, let’s not go there.


What we need to do is invest time and money. We haven’t done is to have a proper selection process, which identifies good potential in public sector banks and brings them up to leadership positions sooner rather than later. Look at the way people have been selected over the last few years with interviews for executive directors on occasion taking two or three minutes with half the selection committee absent, some were interviewed with reportedly lists prepared in advance of the meetings. That is not the way to select leaders and you believe that the public sector cannot throw up leaders, I don’t buy into that.


I am hoping that this selection will throw up some good names, but I do not imagine a private sector banker, who was seeing a career progression in his or her bank, will willingly migrate to a public sector bank. So, are we looking at less than the best moving from private sector to the public sector? These are the things that worry me.


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Q: That would be disaster indeed if less than the best went to the public sector. I completely take your point that the government as shareholder and in a sense a regulator should change its DNA in terms of approaching commercial banks. While those seminal changes have to happen at some point in time, is this at least going to be a better tomorrow for the public sector banks after this process of MD’s is over?


Purwar: It will change. Any change is always attempted for the better has to evolve. Let us give time for this to happen, but I would fully support what Mr. Damodaran has said. Public sector has its own rich quality people and some of the institutions in public sector including my former bank have hugely talented people who can manage all kinds of banks and can stand into comparison with the best of the private sector.


So, I don’t buy this. I would put it this way that we have to have a very strong selection process to ensure that top quality people get selected for these jobs and there has to be a very strong robust selection process to make this happen. We are playing with public money. We are running into hundreds of lakhs of crore of rupees and therefore, people who are going to manage these have to be of top most quality. There should be no compromise there.


Latha: I have two very important takeaways from what you experts are telling me. One, that the selection process has to be robust and two, that you believe the public sector has a lot of talent and considering the people I am speaking to, I clearly buy into that argument. I was just making the point that some critics have made.


The system has evolved over seventy years and it is not going to change very dramatically over night, but if you have it give one piece of advice or some piece of advice to improve the system, what would that be?


Damodaran: I would say identify and select better leaders better leaders, mentor them. These eminent people that you mentioned at the beginning of the program, can come in there, create a level playing field for public sector banks, empower the leadership and let the leadership see itself as empowered because it is not enough to empower; perception of empowerment is also important.


Let the young people look at this as a career option where if you join at a very young age you can progress to the top job in the organisation. What you are now signaling to the youth, who will apply for these jobs tomorrow, is no matter how good you are you will not become the chairman of the bank because that is somebody who will come from the outside based on a track record outside of banking. Is that the signal you want to give to young people joining a large public sector industry?


Q: I take your point. In fact now, when Mrs Bhattacharya of SBI tried to recruit from the campuses, the court struck it down saying that it has to be done through national recruitment exam and process. Do you think an immediate step actually should be to try and bring it down to 49 percent? I know the government has a huge problem trying to get any legislation through. But a whole lot of these controls are happening because of the 51 percent plus that the government has. Is it that instead of pushing the legislation changes to the back-burner, we may perhaps have to advance that? Otherwise, these are going to be cosmetic?


Purwar: Ultimately, that has to happen. It cannot happen today, but ultimately it has to happen. But having said that, the question is not of 49 percent or 51 percent ownership, the question is of proper selection of leaders. I still remember when I joined the State Bank of India, in the initial program, on very senior officer came and told that one of us is going to be the chairman of the bank one day.


And that is the deem with which all of us started the institution and worked hard for it. Point is that we have to have assurance, give assurance to the people; youngsters that you have as good a chance of becoming a chairman if you perform well. As far as quality of people is concerned, there is no dearth. If you ask what would be one comment of mine for tomorrow, I would say, look at the people who can take the organisation to the next level and who can give world class banking to the people of the country. A lot of work needs to be done.


Q: Absolutely, the consistency of the government’s approach, for the moment we are seeing a lot of professionalism, but this is a one time wonder. We do not see it consistently from the government at all. What is your sense? Do you think that only if this 51 percent plus ownership is removed? You started by saying restrictions on the leadership, that comes partly because of the Central Vigilance Commission (CVC), Comptroller and Auditor General of India (CAG) requirements, also because as Mrs Bhattacharya was told that you have to go through national recruitment boards, your salaries also have to have a certain scale. There are restrictions all over the place. Do you think that reducing that 51 percent majority is not a last good step, but maybe the first mandatory step?


Damodaran: That is neither immediately necessary nor is it immediately practical. It is not going to be as Mr Purwar said to get to 51 percent or below 50 percent, there will be problems there.


Q: But can restrictions be removed without it?


Damodaran: Restrictions means what? If you are generating pressure yourself, then stop generating pressure. Ownership need not translate to pressure on management. That is the first step. Number two, you have safety valves even within the existing systems to ensure or you must have to ensure that bonafide errors of judgment are not punished because that is the sword, which hangs over most of the public sector banks.


But, going back to your question about campus recruitment and the inability to do that because you have more than 50 percent government ownership, all the eminent leaders that the banks have provided, including my fellow panelist, have not been recruited on the campuses to the best of my knowledge. They were recruited through in-house recruitment processes that were rigorous, multi-staged and aimed at getting the best people into an organisation that prided itself on being the best.


So, why can we not approach it that way? Why do we say absence of campus recruitment as the major hurdle? And let us assume that you go to the campus and get some extremely bright women and men, what is the guarantee that you will hold on to them, given that the outside world is going to pay much better even if you increase your salaries reasonably significantly?


We have a set of excellent solutions; we have a set of deep-seated problems. Are these the solutions for the problems that exist? I am not so sure. Let us not tinker with the system. Let us look at strengthening the system. After all, it is a system that for all its problems has delivered something, it has taken banking to the common man, and it has given simple products to the common people.

Even recently, who was in the forefront of the Jan Dhan Movement? It was the public sector banks. Who is now actually pushing the insurance schemes for the poor? It is the public sector banks. They are the instrumentalities. So, you need them to do all of that and then you say there is no leadership, they cannot deliver, so I must go outside and get people. It is unfair to say the least.

First Published on Jun 6, 2015 04:00 pm
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