Missing bosses of large Indian banks may delay efficient functioning

“In my understanding, the revalidation asked by the RBI is a polite way of not approving the reappointment," said Hemindra Hazari, an independent banking analyst.

According to him, Yes Bank's reported numbers look good but a bank that reports divergences for two consecutive years (Rs 4,176 crore for 2015-16 and Rs 6,355 crore for 2016-17) does not merit another term for the CEO. "What signal are you sending as a regulator? The divergence was reported because RBI pushed for it. Also, the accountability always comes from the top (than at a junior level) and a reappointment would mean it is a reward and not a penalty."

Meanwhile, Yes Bank's stock has taken a beating of 6.8 percent in the last five days as investors worry over uncertainty at the private bank's helm.

"The bank has been growing aggressively when the industry is not and this may not sustainable and healthy in the long run. At the back of the mind, every investor will be concerned," said a banking analyst.

"Missing top leadership is a cause of worry as many strategic decision making suffers. Strong leaders and tough decisions are the need of the hour amid capital constraints, large pile of bad loans and losses made by banks," he added.

RBI, government delay approvals

At present, one-third of public sector banks (PSBs) remain headless as a Prime Minister-headed panel is yet to clear the CEO appointments. The chief executive officer post at three PSBs remain vacant for more than seven months.

In June end, the Banks Board Bureau (BBB) had recommended names of 14 candidates to the Union government. These candidates were to be appointed for vacancies arising in the current financial year. The Appointment Committee of Cabinet (ACC), headed by PM Narendra Modi, makes the appointments.

Earlier this month, Piyush Goyal, then interim finance minister, informed the Lok Sabha, “The BBB has completed the process of interviews of candidates…We will expedite the process.”

Also Read: Of leadership crunch and low pay: The talent crisis in public sector banks

He added that the government has put in place a robust and strict system for appointment of heads of public sector banks as earlier appointments were held in an arbitrary manner.

Large private banks' leadership dilemma

In the private bank space, the largest lender ICICI Bank's CEO Chanda Kochhar is on leave pending an enquire against her, while rival Axis Bank has shortlisted three candidates of which one is yet to be approved by the RBI.

Axis Bank's current CEO Shikha Sharma's term ends in December this year.

HDFC Bank's deputy managing director resigned a few weeks ago. Although the bank's current CEO and MD Aditya Puri's term ends only in 2020, the bank has started looking for a successor.

Missing heads of PSBs

On July 31, two more PSB CEOs — Rakesh Sharma of Canara Bank and Rajeev Rishi of Central Bank of India — hung up their boots, taking the total number of such vacancies to seven. There are 21 public sector lenders in the country.

Dena Bank, Punjab & Sind Bank and Andhra Bank do not have a CEO since January this year.

Allahabad Bank MD and CEO Usha Ananthasubramanian was sacked recently after the government divested of her responsibilities in May following her name in the CBI charge-sheet in the Nirav Modi scam.

In June, Ravindra P Marathe, MD & CEO, Bank of Maharashtra, too was divested of his portfolio after he was arrested (later obtained bail) for allegedly violating norms while extending loans to a real estate developer.

Bank of Baroda’s MD & CEO PS Jayakumar will complete his three-year term this October, but is likely to get an extension.

On August 27, BBB invited applications for the post of Managing Director and Chief Executive Officer in Canara Bank for a three-year term.

Requirement of recruitment

The IMF in its annual assessment earlier in August mentioned decisive strengthening of PSB governance as one of the immediate priorities apart from revival of bank credit and efficiency in bad loan-clean up.

Over last two years, the identification, selection, and nurturing of quality leadership for PSBs, as well as the continuity of said leadership, has been under greater focus, with primary responsibility for these tasks being entrusted to the BBB.

Eminent professionals from the private sector have also been inducted at several PSBs.

However, the current top management crisis and the upcoming mass mid-level management retirements at various PSBs in the near term could only weaken the financial stability of the bleeding and capital-starved banking sector.