Banks in a quandary over missing CMDs

The decision of the government to scrap all proposed appointments of chairman and managing director (CMD) for banks finalised by its predecessor has put financial institutions in a quandary.

This decision is likely to adversely affect all the key functions - extending large credit, investments and human resource - of the banks. Bankers have suggested the senior-most executive director (ED) be given the charge of the CMD till the new appointments are finalised.

The banks affected by this decision are Punjab National Bank, Bank of Baroda, Canara Bank, Oriental Bank of Commerce, Indian Overseas Bank, Syndicate Bank, United Bank of India and Vijaya Bank. In Vijaya Bank, the top post will fall vacant later this financial year.

In Kolkata-based United Bank of India (UBI), the top post fell vacant following the sudden resignation of Archana Bhargava in February last year after bank's losses mounted during the October-December quarter. A forensic audit was conducted and its loan-sanctioning limits were capped. Neither the previous government nor the present one has appointed a CMD till date.

On Monday, the finance ministry said selection of eight CMD post and fourteen ED posts in public sector banks are cancelled following a review. The selection - for the vacancies arising in 2014-15 - was made in October last year by the UPA government.

Manipal-based Syndicate Bank found itself without a CMD when incumbent S K Jain was arrested by investigative agencies over graft charges in August. Jain was later sacked by the government and the top post in the bank has remained vacant.

According to bankers, decision making in the absence of a chairman gets adversely affected, particularly in the area of sanctioning big loans. The chairman usually has the power to sanction big loans to the tune of Rs 100 crore and above. In addition, all loans are renewed once a year. So, if a chairman had sanctioned a loan in the previous years, the EDs will not have the power to renew the loans this year. In such cases, the matter is referred to the management committee or the board of the bank.

Another example of how the credit decisions suffer is this: if a borrower - who has already received a clean loan from the bank - requires more credit, only the chairman can sanction the new loan.

Management of non-performing asset and recovery has also been affected due to lack of CMDs.

"At a time when all the banks have formed non-performing asset recovery committees, usually headed by their respective CMDs, its power is far greater than EDs, particularly when it comes to settlements," said a senior banker.

The other areas that get adversely affected are human resource and investments. Though the banks which have three EDs, one of the three is responsible for human resource, but it is the CMD who takes crucial decisions like promotions.

The promotion process, especially in the senior-level like deputy general managers or general managers, is hampered in banks that do not have CMDs. According to banks' promotion policy, a chairman heads the selection committee. In the absence of the chairman, the executive director has to take permission from the government, which is likely to take a longer time.

The presence of chairman is necessary to expedite the appointment process as well. "The large banks have three EDs. The chairman's presence is required to smoothen the coordination among them," said another official from a public sector bank.

Though the finance ministry has emphasised that vacancies would be filled up expeditiously, experts believe it will take a few months to appoint the candidates. The process requires clearances from various government departments, including a vigilance clearance.

In the cases of UBI and Syndicate Bank - where the post of the CMD fell vacant suddenly - EDs were asked to take care of day-to-day operations. The government had said the financial and administrative powers of the CMD should be exercised with the approval of the board and the management committee.