The story behind promotions in PSBs and the growing need for reform

The challenge is to transform the promotion process from a source of distrust to a catalyst for developing genuine leaders

For public sector bankers, March is the most hectic and emotionally draining month of the year. There’s intense pressure to meet business targets. It continues into April to ensure statutory audits run smoothly and earnings calls go well with analysts.

 

Parallelly, a human drama unfolds. For most banks, the annual promotion exercise culminates in March, and the transfer season kicks off in April. Officers spend the last evening of March 31 anxiously awaiting promotion results even as their families ready themselves for yet another relocation to yet another geography. The results can even be released on April 1, the first thing in the morning, on the bank’s internal portal.

 

Vacancies arise because of routine retirements and the growing need for leadership talent as business expands. Promotions are designed to identify officers capable of shouldering higher responsibilities. Every bank employee seeks recognition and reward, but in many PSBs, the promotion process has failed to earn the employees’ trust. Of course, a few banks handle this process transparently, with a robust mechanism to spot genuine leaders from the crowd. Such PSBs outperform peers and command greater employee loyalty.

 

Most PSBs follow a three-part framework to prepare the promotion merit list: Annual performance scores for the last five years; a written test assessing banking knowledge and decision-making aptitude; and an interview conducted internally with a few domain experts and board directors. Some banks also have a group discussion, especially for higher grades.

 

On paper, past performance, technical competence and behavioural assessment appear to be a balanced approach, but in practice, these have flaws in both design and execution. This often dents the process's credibility.

 

Annual performance scores are based on key responsibility areas, integrity and personal traits over the past five years. Typically, this segment accounts for 40 to 50 per cent of total promotion marks. Each year’s report is meant to capture these traits, recorded by the immediate reporting officer and reviewed by the next higher authority. If one is unhappy with the assessment, one can appeal; independent groups of senior officials handle such appeals.

 

This process can bring a genuine performer back into the fray, but how does one eliminate the possibility of awarding disproportionately high marks to “favourite” officers? There are instances of the same officer getting very high marks one year, and very low the next. Such swings point to personal bias – the “law of irrationality” in human judgement. Higher-ups often use this as a tool for patronage or punishment.

 

Promotions in most PSBs relied mainly on past performance and a brief interview by senior officials until the Department of Financial Services (DFS), Ministry of Finance, convinced them to introduce objective written tests to evaluate professional knowledge across banking, finance and current developments, along with aptitude tests to gauge decision-making skills. The complexity of these exams depends on the grade. For promotions to top positions, such as general manager and chief general manager, these tests are often not held.

 

Some of the best field performers – juggling with the traffic of walk-in customers, implementing government schemes such as the Pradhan Mantri Jan Dhan Yojana, driving recoveries and meeting aggressive cross-sell targets – lack the flair for scoring in quiz-style tests. Officers involved in audit and administration – with more predictable schedules and easy access to reference material – can clear these exams comfortably.

 

Such tests are modelled on a competitive entrance exam; they don’t measure the practical competence of a practising banker and run the risk of filtering out genuine performers in the field. In the recent past, the written test at one PSB was so tough that very few officers managed to cross the qualifying mark. The bank had to lower the qualifying score to make a few more candidates eligible.

 

The group discussions often degenerate into chaotic sessions where everyone scrambles to speak – a noisy ritual that rarely adds value to the selection process.

 

The last leg, the interview, typically carries about 30 per cent of the total weightage. It seems to be the most opaque part of the process, conducted behind closed doors. There is no room for an appeal if one is unhappy with the outcome. It can last five minutes for one candidate and half-an-hour for another. The committees that conduct such interviews often wait for subtle or explicit “indications” from certain quarters before finalising the marks.

 

In the run-up to such interviews, and after that, before the results are out, there is intense lobbying. Along with putting their best efforts to meet year-end targets, prospective candidates spend a lot of time building connections and “corridor capital,” seeking support from those who can sway the interviewers. There is no guarantee that the high performers will find themselves on the list of successful candidates if others, the more connected ones, need to be elevated.

 

The Financial Services Institutions Bureau, which searches for, selects, and recommends candidates for board-level positions – such as chairpersons, managing directors and executive directors of PSBs and other public sector entities in the financial space – typically publishes the results the very day the processes conclude. But the results of internal bank promotions can take as much as a month.

 

The time lag between the interview and the result invites speculation: If marks are allotted on the day, why can’t the results be published that very evening? A transparent interview process, which is recorded and available for future reference, and a tighter timeline would reduce rumours and lend credibility to the process.

 

In 2022, the Financial Services Institutions Bureau replaced the Banks Board Bureau, an autonomous, non-statutory body established in April 2016 to improve the governance and leadership selection in PSBs.

 

Even after the merit list is drawn, candidates face another hurdle: Vigilance clearance. Any officer against whom disciplinary proceedings are contemplated, initiated or pending, falls under the discretionary lens of the Departmental Promotion Committee.

 

While some officers can remain in the “contemplated” limbo for years, effectively excluded from the promotion process, those with strong connections can navigate and have the files closed quickly. Even when the disciplinary process concludes, and an officer is found culpable for even a relatively minor lapse, the penalty does not end with formal censure or punishment. Many such officers must undergo a further “rigour period” of one year, during which they are not eligible for promotion.

 

Not every bank messes up the promotion process. There are exceptions. Besides destroying the careers of competent employees, banks that do not follow a transparent and fair process do not have their seniormost officers promoted to the ranks of managing director and executive director. This is proof of a faulty internal selection process.

 

A couple of years ago, the DFS directed PSBs to restrict promotion to higher grades – DGM to GM, and GM to CGM— for employees who don't have two years of service remaining. There is a logic to this. Since such officers will not be able to compete for the top position, why promote them internally?

 

However, this could kill the motivation to perform in even the most committed officers. When many deserving candidates reach the top tier within a bank but cannot progress further, why not consider promoting officers—who still have at least one year of service left—to the next level, if they merit it? Such recognition would serve as a token of appreciation, sustaining motivation and benefitting the bank.

 

The PSBs need to structure the promotion process to identify the leaders who can help the business grow, take calibrated risks, drive initiatives and comply with regulatory and internal scrutiny. Officers who are risk-averse, well-connected and adept at managing internal optics can rise, but they don’t contribute to the institution’s growth. The challenge before PSBs is to transform the promotion process from a source of distrust to a catalyst for developing genuine leaders. 

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The writer is an author and senior advisor to Jana Small Finance Bank Ltd. His latest book: Roller Coaster: An Affair with Banking. To read his previous columns, log on to www.bankerstrust.in. X: @TamalBandyo