Splitting CMD post of PSBs a dangerous proposition: Assocham

Bifurcation of Chairman and Managing Director's post may not augur well for the public sector banks as it may lead to inefficiencies and bureaucratic hassles rather than improvement, Assocham said in a report.
Moreover, proposed roping in of private sector executives may turn out to be a regressive step as public sector banks have completely different culture and ownership as compared to their private sector counterparts, the chamber said.
Public sector banks control about 75 per cent of the total banking business.
"There are fears that one more layer even though non-executive position may lead to some kind of inefficiencies," said Assocham Secretary General D S Rawat.

Bifurcation could also lead to differences between managing director and chairman at times leading to delay in decision making and other impediments in the growth and expansion of the bank unlike the private sector, he said.
"Concerns are there that large loan sanction which needs board approval if there is difference of opinion between chairman and CEO could get delayed. Delay in sanctioning loan would have adverse impact on the industry," he said.

Banking system, which is considered to be the life line of the economy may get choked due to want of fund and subsequently lead to slowdown of the GDP growth.

This has been witnessed in the past and India Inc has been highlighting this issue from various platforms.
Another practical difficulty, it said, could be that if the two top board members are not in good terms , then also the loan sanctioning process would take a back seat as the CEO would not clear any loan proposal.
As a consequence of this, bank would suffer as the main business of the bank is disbursal of loans from the deposits mobilised, it added.
"Since the government is considering three-year fixed term for both Chairman and CEO, this is one of the reasonable concern areas. On the other hand, this scenario may not exist if one person is the chairman and managing director," it added.

It is to be noted that from December 2014 onward, the government decided to split the post of Chairman and Managing Director. It has already appointed MDs in four public sector banks--Indian Overseas Bank, Oriental Bank of Commerce, United Bank of India and Vijaya Bank.