Half-a-dozen state-owned banks may be headless and governance issues at some of these lenders remain yet to be addressed, but a proposal approved by the government will ensure a minimum tenure of four to five years for the next chiefs of India’s largest bank- State Bank of India.
A decision to provide a longer term in office was taken by the government after the appointment of the current chairperson of SBI, Arundhati Bhattacharya, last year.
While she will have a three-year stint, her successors who will be chosen from a crop of managing directors in the bank, will have fixed tenures of four to five years. This could lend stability and help the management work on and implement medium and long term business and strategic plans, a top banker briefed on the development said.
This will also mean that the residual age bar — the minimum number of years in service until 60 which is the retirement age for PSU bankers — will not apply for the next SBI chief, the person said. Arundhati Bhattacharya’s predecessor — Pratip Chaudhuri was in office for just two years. SBI, which, along with its associate banks, controls close to a fourth of banking assets of all Indian lenders does not have too much of a reason for concern when it comes to governance, its chairperson, Arundhari Bhattacharya told The Indian Express. The quality of the SBI board, too, is good, she said, a worry otherwise in many other PSU banks.
She is the first woman to head the 208-year-old bank.
Relatively short stints at the top state-owned banks have led to what bankers term as the ‘Quarter-Se-Quarter-Tak’ or QSQT culture, marked by bank chiefs looking to boost numbers especially towards the second half of their tenure.
Such short stints also leave senior bankers, especially those appointed to banks where they have not worked in the past, little time to address organisational issues including succession plans or to develop a long-term business plan. A committee appointed by the RBI ad headed by the former chairman of Axis Bank, PJ Nayak on governance in state-owned banks had recommended a minimum tenure of five years for CMDs and three years for executive directors. Besides, it had also suggested improving the quality of PSU bank boards, their discussions and to focus on key areas such as business strategy, financial reports, risk and compliance.
The government — which has a controlling stake in public sector banks is yet to act on the committee’s recommendations though it has said that the report is being vetted.
Private banks in India, which are expanding rapidly and moving up the pecking order for Indian banks, are not hamstrung by norms on appointment and pay packages to attract talent which weigh down local PSU banks. The positive impact of long tenures for CEO’s of private banks such as HDFC Bank and ICICI Bank are reflected in the performance of these banks.
Aditya Puri has headed HDFC Bank right from the time the bank launched operations in 1994, marking over two decades while Chanda Kochhar has been CEO for over five years. Earlier, KV Kamath too had a long run in ICICI. PJ Nayak headed Axis Bank for an extended period during its early years, helping it emerge over time as the third-largest private bank. It helps that appointments to top positions in private banks are board driven while in PSU banks, it has to be approved by the government.
In fact, the level playing field for state owned banks has been skewed further with the central bank raising the age limit for CEO’s in private banks to 70, while for PSU banks, it still remains 60.
SBI may be treated on a different footing compared to smaller banks given its pedigree, size and systemic importance in the Indian banking industry.