FinMin considering proposal for fixed term for PSU bank chiefs

Many occasions that top executives appointed for a short tenure that hampers implementation of medium or long-term strategies of banks

The Finance Ministry is contemplating giving a fixed tenure to chairmen and managing directors of state-owned banks in order to ensure stability in operations.

"The government is examining a proposal for having a fixed tenure for CMDs of public sector banks," a senior Finance Ministry official said.

It has been pointed at many occasions that top executives are appointed for a short tenure that hampers implementation of medium or long-term strategies of banks, the official said.

Therefore, the government is looking at correlating the the tenure with job-related performance, the official added.

At present, the retirement age for top executive is 60 years irrespective of his or her performance.

So, generally the term of CMDs varies between one year and five years.

Recently, the Finance Ministry turned down the Reserve Bank's proposal to bifurcate the post of Chairman and Managing Director in public sector banks saying this position doesn't enjoy absolute powers as is being claimed by some international experts.

The Finance Ministry said this in response to the RBI's contention that CMDs of public sector banks enjoy absolute power along with boards.

The Finance Ministry said the board is a collective decision making organ through which major decisions of the organisation are implemented and to say that CMD enjoys absolute power and disregards the decision of the board of the bank is not factual.

CMDs of public sector banks are thorough professionals, having long career in the banking sector and they are well aware of the issues to be tackled in this segment.

It can be noted that in PSBs, the top executive is designated as Chairman and Managing Director, with the exception of the largest lender State Bank of India, where the top honcho is the chairman and there are four managing directors with clearly defined executive roles under her/him.

The posts of Chairman and Managing Director in the private sector are held separately.

The RBI had set up a committee under the chairmanship of A S Ganguly in 2004-05 to study the issue of bifurcation of the post of Chairman and Managing Director in banks. The panel had recommended such a bifurcation.

Private sector banks in 2007 implemented this recommendations.