Bank chief selection norms may change

The norms for selecting public sector banks’ chiefs are likely to be tweaked again. The finance ministry has proposed to remove from the guidelines a clause on the lateral movement of small and mid-sized banks’ heads to large banks. If the proposal goes through, the executive director of a large bank will be preferred over the chairman and managing director of a small bank to fill a top vacancy in an ‘A’ category bank.

The ministry has sought the Reserve Bank of India’s views on the issue. The proposals were sent to the central bank after securing the approval of the then finance minister, Pranab Mukherjee. Now that P Chidambaram has become the finance minister, the department of financial services would have to seek his approval.

The changes were proposed after a selection committee, comprising top officers from the finance ministry and the central bank, recommended the names of three executive directors for heading Bank of India, Bank of Baroda and Canara Bank, even when three CMDs were eligible for a lateral shift. The move was criticised as being a departure from the existing practice.

“Eligibility and suitability are two different things. An ED of a large bank handles much more business than the CMD of a small bank. Moreover, would you like to dislocate a CMD if he is performing well? And if he is not performing well in the small bank, how do you expect him to handle a large bank?” said a ministry official, who did not wish to be identified.

The ministry has also proposed a fixed tenure for bank CMDs to provide stability. It is of the view a fixed tenure would give CMDs enough scope to strategise and raise their level of commitment and accountability.

Officials agree it might not be easy to move ahead with the proposal immediately, as the heads of public sector undertakings in other sectors would also demand a fixed tenure. “But over the long term, that should be the way forward,” the official added. The new minister will now have to take a call on all these issues. The names of EDs recommended by the selection panel for heading large banks have also been referred to him. Mukherjee had returned the file to the committee to reconsider its decision after it got a lot of flak from a section of industry that alleged the norms were ignored in promoting juniors over seniors.