The debate over difference in executive's pay packages between public sector banks (PSBs) and private sector banks has emerged again. On June 14, Moneycontrol reported that Dinesh Khara, the Chairman of State Bank of India took home an annual salary of Rs 37 lakh in FY23.
Khara manages Rs 55.17 lakh crore of assets (as of March 2023) for India's largest bank. And while his compensation (comprising of basic pay and dearness allowance) has increased by around 7.5 percent compared to the previous year, it is still not comparable to that of his private bank peers.
As a point of comparison, HDFC Bank CEO Sashidhar Jagdishan drew Rs 6.51 crore in FY22. He manages a balance sheet less than half of SBI.
And while the FY23 numbers aren’t out yet, even compared to last year Khara drew some 18 times less than Jagdishan. On the whole, the salary figures of other private bank executives are also quite high when compared to that of the SBI Chief and other PSB heads.
The report of Khara’s salary almost instantly triggered a debate on social media. While some argued that his compensation is too low considering the size of the bank he heads, others felt the SBI Chairman’s job comes with other perks.
Is PSB Chief salary too low?
This is, in fact, an old debate. In 2020, an innocuous joke by the then SBI boss, Rajnish Kumar, triggered a debate in India’s banking circles — the humble compensation packages of government-run bank officers, compared with the salaries of their private sector counterparts.
In a recent conference call with analysts, Kumar was asked if his bank would undertake a pay cut for employees. Pat came his reply: "Road pe aake rehna padega, pehle hi itni kam milti hai." (I'll have to live on the road, I already get so less).
Though this was said in jest, no one could miss the undertones to the relatively lower pay of state-run bankers. And as it happens with such comments, Kumar’s remarks triggered a fresh debate on the issue. The comments didn’t go well with many in the banking industry.
Industry agrees?
One former SBI chairman said Kumar’s comment was in bad taste and amounted to lowering the dignity of his office. The person did not want to be named. A few others sympathised with Kumar, saying he indeed has a point about the lower pay levels in PSBs.
Is SBI chief’s pay equitable for the head of India’s biggest bank? That depends on which side of the debate you are on. The SBI Chairman salary must be seen in combination with the perks enjoyed. Here are a few: a plush bungalow in Mumbai, dedicated help, two cars with drivers, unlimited petrol, and so on. But, even then, the total compensation (including perks) will still be far lower than private sector bank peers.
In fact, the pay disparity between PSB chiefs and private bank chiefs isn’t an issue that is limited to the banking sector alone. This is true for companies across all sectors. The problem is that this lack of level playing field could create a lack of incentive for professionals to have longer stints with state-run banks. While the pay disparity is huge, PSUs and particularly banks are supposed to compete with private sector rivals with the same aggression.
As JN Gupta, founder of SES, a proxy advisory firm and former executive director at the Securities and Exchange Board of India (SEBI) puts it, PSBs need to be granted a level-playing field to compete with private banks. “Right now, they are asked to run a race with their arms and legs tied,” Gupta said.
Some of the former bankers who have held top positions in PSBs point out that the low pay is a factor that acts as a turn off for the top executives. The interesting point is the issue is not only about PSU bankers, even central bankers had spoken about lower pay in public sector.
In August 2016, former RBI governor Raghuram Rajan called attention to the issue when he said salaries of top level employees of the public sector, including RBI, are way short of global standards. "One of the problems, of course, is that the public sector overpays at the bottom but underpays at the top. I also feel underpaid," Rajan had said.
(This is an updated version of an earlier published piece on Moneycontrol)
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