Centre likely to hire public sector bank EDs through lateral entry

The Union government, for the first time, is exploring roping in professionals from the private sector to join as executive director (ED) on the board of public sector banks (PSBs). As a first step in this initiative towards governance reforms, the government has proposed — in the Finance Bill, 2019 — increasing the number of full-time directors from four to five for large PSBs.

A senior official in the finance ministry said the idea was to create specialised positions for whole-time directors in PSBs. While there may be one ED for technology, another may look after micro, small, and medium enterprises (MSMEs) dedicatedly, the official added.

This will potentially reflect the priority areas the government may assign to PSBs — prioritised lending to MSMEs and leveraging technology to take care of customers’ needs and streamline systems.

“The government’s plan is to strengthen the board of PSBs through dedicated EDs in areas of MSMEs or retail, technology, risk, treasury and credit. For technology, we are open to hiring experts from the private sector,” the official said, requesting anonymity.

So far, the government has hired professionals through lateral entry for the position of managing director (MD) and chief executive officer (CEO) in PSBs. 

In 2015, the government had chosen two private sector professionals to head PSBs — P S Jayakumar, who spent over two decades at Citigroup, as CEO of Bank of Baroda, and Rakesh Sharma of Lakshmi Vilas Bank as the head of Canara Bank. 

At that time, the government had received nine applications but found only two candidates suitable.

The government had in 2018 advertised twice to fill the post of MD and CEO in Canara Bank through lateral hiring. However, “it was met with less than an enthusiastic response on both occasions” and the idea to hire a private sector professional was eventually dropped.

“Lateral induction into PSBs is a welcome step. However, to attract talent from the private sector, the government must offer an attractive compensation package along with a liberty to take decisions without fear of a witch-hunt from investigative agencies,” said Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services LLP, adding, “the government should undertake an overall review of governance practices, instead of piecemeal steps”.

During her maiden Budget speech on July 5, Finance Minister Nirmala Sitharaman had said the government would initiate reforms to strengthen governance in PSBs.

“Increasing the size of PSB boards is a good idea as specialised whole-time directors would aid lenders in competing with private banks, particularly after the size of PSBs will go up following the government’s merger plan,” said an ED of a Mumbai-based PSB, requesting anonymity. He, however, opposed the idea of lateral entry for the position of ED, arguing “there is no shortage of competent officers within the universe of PSBs”.

The Banking Companies Acts of 1970 and 1980 allow for 11 directors on the board of PSBs except State Bank of India (SBI), which is governed by the SBI Act, 1955, and can have up to 14 board members. 

The central government appoints whole-time directors, based on recommendations of the Banks Board Bureau. The PSB boards include a government and a Reserve Bank of India representative, a chartered accountant, and workers’ representatives.