PSU banks underpay at top; I too feel ‘under-paid’: Raghuram Rajan

As per the latest data on monthly salaries made public by RBI, Rajan's total monthly emoluments stood at Rs 1,98,700 for the month of July 2015.

By: PTI | Mumbai | Published: August 16, 2016 5:02 pm
raghuram rajan, rajan, rbi governor, rbi, reserve bank of india, public sector banks, raghuram rajan salary, rbi governor salary, public sector bank salary, business news RBI governor Raghuram Rajan addresses the FIBAC 2016– an Annual Global Banking Conference in Mumbai. (Source: PTI)

Flagging difficulties in getting top talent at public sector banks, RBI Governor Raghuram Rajan on Tuesday said they tend to over-pay at the bottom but under-pay their top executives, even as he rued, albeit jokingly, himself being “under-paid”. “One of the problems, of course, is that as with all public sector entities, you overpay at the bottom and underpay at the top… Yes, you feel that you are doing the job for the broader public but you just make it harder to attract top talent, specially a lateral entry,” Rajan said in Mumbai while talking about public sector banks (PSBs).

Addressing a banking conference in Mumbai, the outgoing Governor jokingly added, “I also feel under-paid.” As per the latest data on monthly salaries made public by RBI, Rajan’s total monthly emoluments stood at Rs 1,98,700 for the month of July 2015. Rajan, on-leave professor of finance at Chicago University and former Chief Economist and IMF, will return to academia after his term at RBI ends on September 4. The top-level salary disclosures made by the banks in their respective annual reports show a sharp difference between the total remuneration paid at the public sector and private sector entities.

Public sector behemoth SBI’s Chairperson Arundhati Bhattacharya got just about Rs 31.1 lakh in the fiscal year 2015-16, while public sector major HDFC Bank’s Managing Director Aditya Puri’s total remuneration for the same period was more than 30-times higher at Rs 9.7 crore. Rajan also suggested giving rewards like ESOPs by public
sector banks, which is very common in private sector, by taking advantage of the current low share valuations of PSBs.

Rajan said a better payscale at bottom levels can also be a source of opportunity, and pointed out that the RBI’s compensation packages even for class III employees are attractive enough to get really highly qualified people in. “We get lot of engineers, MBAs even in class III jobs. Our strategy has been to try and expand opportunities these people have while saying that you are not just there for clerical work, we are asking you to do much more value,” he said.

Rajan said while one of the strengths of the public sector sometimes is the absence of pay and promotion that is very sensitive to performance, too little sensitivity can also be a problem as high performers get demotivated, and the slothful are not penalised. An increased emphasis on performance evaluation, including identifying low performers with the intent of helping them improve, may be warranted, he said.

“In addition, rewards like employee stock ownership plans (Esops) that give all employees a stake in the future of the bank may be helpful. With public sector banks’ shares trading at such low levels, a small allocation to employees today may be a strong source of motivation, and can be a large source of wealth as performance improves,” the Governor said. The central bank chief said lateral hires are also important, but many banks as well as public institutions have strong aversion to lateral hires because they break the cadres.

The Governor said one of the difficulties public sector banks has is the court judgements that prohibit hiring from specific campuses. It is an anomaly that the National Institute of Bank Management is supported by public sector banks’ funds, but sends most of its high quality graduates to work for private sector banks. “Public sector banks can petition the courts to allow some modicum of campus hire, especially when the campus chooses openly through a national exam,” he said.

Another alternative is to make bank entrance exams much less onerous to take, with applications, tests, and results, wherever possible, available quickly and online. “Banks then have an easier task of persuading students on elite campuses to take the exam. We are following this latter course at the RBI,” he said.

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The Governor said there is a need to be more liberal in allowing local hires. There are many places in the country where people may find it difficult to go, but local talent is available and can do a fantastic job. “To have local information, be comfortable with local culture, be locally accepted, and be competitive in low-cost rural areas. Public sector banks will have to have more freedom to hire locally, and pay wages commensurate with the local labour market,” he said.

Rajan said as banks adopt differentiated strategies, they should move away from common industry wide compensation structures and common industry wide promotion schemes across all public sector banks. Rajan said the thinning of middle management ranks in public sector banks can be viewed as an opportunity to draw in more younger people and promote them faster by giving them significantly more support in terms of training,

“Yes, we cannot give them 25 years seasoning as we did in the past, but may be we can give them training. I know many of you are looking at these possibilities, including using online training schemes in order to do this,” the outgoing Governor concluded.

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  1. K
    Aug 16, 2016 at 12:08 pm
    If the concept of minimum wages is valid then there should be maximum permissible compensation also.Getting hefty pay sitting at the top just to count the hatchlings which have been nurtured by small people below has to go.
    1. Narasimham Vakkalanka
      Aug 16, 2016 at 12:29 pm
      Underpaid and over time is the hall mark of PSU banking system. It is beyond doubt, There are several factors , which are hunting the PSU banking system in India. One needs to fix factors like dominance of unions in polity decisions, interference of government in loan sanction process, low out put of the employees, poor HR practices, poor ratio of top and bottom employees etc for sustainability of PSU banks. Some action is desperately required from the managements of banks and Government. Moreover a regulatory body is required to consuted for monitoring the governance standards as well as to monitor the functionality of PSU banks.
      1. P
        Aug 17, 2016 at 9:45 am
        That's a basic but important point Mr.Rajan has put forward. 10 th Wage revision of PSB was finished 1 year before the eligibility of 11th. And one more think IDBI BANK LTD a new generation PSB yet to finish the wage revision settlement for year 2012-16 and 2016 is half over. This type of issues are realy important for employee . They are motivating factors. Banks generally makes provision for these revisions but that money remains pending in their suspense account.
        1. R
          Rajshekhar Singh
          Aug 16, 2016 at 3:58 pm
          Really money motivates a lot to attract the top talent to any organisations. Mr rajan has rights pointed and his suggestion about the option of ESOPs is what followed in practice my MNCs and the newly entrant unicorn startups to attract the right talent fresh out of reputed insutions as well laterally hired reasoned experience holders. Looking at the top MNC banks and the first world central banks and commercial banks , the kind of privileges to there top management and keep them engaged with the possible research istance which attracts creamy talent not only among there citizens but from developing countries as well. Our IITians and IIMians and other top collages some time prefer these MNC banking jobs for the same reasons. lt;br/gt;Enhancing the ry input at the entry level and the cl 3 level is in the right direction. it has tapped our young intelligent graduate to the banking and other government jobs. These engineers and MBA graduates will make these offices efficent right from the bottom . As PM Modi gives us the IT and techno-savy work force demographic dividend mantra , These newly inducted better qualified will make the visible change the coming;br/gt;I thing now apart from the monetary input , PSU banks should maneuver towards equipping there cadres with specialized skills in Finances and IT and there subsidiary super specialties to reinforce the upcoming challenges in the financial world from financial consultancy to government and stockholder and as a services to outsider to tackle domestic and global economic and monetary crisis spillovers , combating the cyber frauds in the transactions chains. There is a lot need to be done. lt;br/gt;We should acknowledge that a lot of excellent work has been done in the past two to three years from financial inclusion exercises ociated to PMJDY , MUDRA , NPCIL to undergoing banking sector bad loans , NPA clean up exercises. lt;br/gt;But its unfortunate that the Dr Rajan is going now . His contribution to RBI and our economics sector is so huge. He raised the bar of RBI policies outcome .The sense of stability he gave to our monetary policy will remain intact for few more year even after his tenure. We hope is successor will keep maintain the momentum.