Leadership positions: Public sector banks should focus on grooming leaders

The government's plan to open senior roles in public-sector banks to private executives aims to boost efficiency but may clash with institutional values and pay disparities

In principle, the government’s decision to open up senior positions in public-sector banks to candidates in the private sector can be viewed as a creative way of injecting management dynamism and competitiveness into a sector that accounts for a little over half the bank loans in the Indian system. The proposal can be seen as part of a trend that began some years ago with the lateral entry of non-bureaucrats at senior levels in the civil service to bring in sector expertise to specific ministries. This policy has largely been underwhelming for a number of reasons, including the unwillingness of the bureaucracy to cooperate with the lateral entrant. In the specific case of banking too, it is unclear whether offering leadership positions to private candidates will prove effective, on account of core differences in institutional values between private and public-sector banking.

 

State-owned banks operate under paradigms different from those of their private-sector counterparts, a factor that inevitably plays a significant role in their performance outcomes and assessments of employees. It is true that both varieties of banks have to follow mandatory social obligations imposed on them in terms of lending to designated priority sectors, such as agriculture, education, and housing, where profitability may be limited. But social objectives and public welfare remain the key objectives of state-owned banks, compelling them, for instance, to operate in loss-making financially underserved areas where private-sector banks would hesitate to set up branches. These key foundational differences alone would make it challenging for any leader imbued with the instincts of risk-taking and profit maximisation. These exigencies and the pressures of dealing with entrenched unions are unlikely to attract too many private-sector bankers. No surprise, the bank unions have opposed the move, saying it would amount to an attack on the national character of state-owned banks and open them to de facto privatisation of leadership. Indeed, it may be a better idea for state-owned banks to adopt the private-sector practice of focusing on grooming dynamic employees for leadership in an institution where they are familiar with the culture and operational constraints. 

 

That said, it is not as though private-sector executives have not ventured into the realm of public-sector banking. The most notable example is Prakash Tandon, the first Indian chairman of Hindustan Lever (now Hindustan Unilever), who went on to head Punjab National Bank. In 2015, the government appointed former Citibanker P S Jayakumar managing director (MD) and chief executive officer (CEO) of Bank of Baroda, overseeing its merger with Vijaya Bank and Dena Bank. In the same year, the government tasked Rakesh Sharma, MD and CEO of Lakshmi Vilas Bank, with the job of leading Canara Bank, as his three decades with State Bank of India would have stood him in good stead in reducing the bank’s non-performing asset portfolio. All told, these rare examples make it difficult to conclude that private-sector bankers can be game changers in public-sector banking. In any case, the wide differential in pay and perks between the two sectors alone would make it difficult to attract top talent, except for the rare few who have adequately augmented their earnings in the private sector and are looking for a new set of challenges to tackle.