Rajan bats for more freedom to state-run banks

Batting for greater autonomy to state-run lenders, RBI Governor Raghuram Rajan on Monday said the government should look at them as truly ‘independent entities’ that take their own commercial decisions and not as an extended arm of the administration.

He also said that while it was fine for the government to involve banks to further the social sector agenda, it should ensure that such schemes should be financially feasible for the lenders.

"You cannot get a mandate and cannot fund it. After all, public sector banks also have private shareholders and are not any longer an extension of the government.

"They should be seen as independent entities," Rajan said, addressing bankers at an annual industry conference in Mumbai.

"By all means, the public sector banks are there to undertake social actions when necessary but those mandates should be backed by financial gains," he said.

RBI is working with the government on issues regarding the governance at central banks, Rajan said, adding: "We are in constant dialogue with the government, we are discussing these issues on governance improvement, etc and let us see how much progress the government and the RBI make".

He further said that RBI has forwarded the recommendations of the P J Nayak committee on corporate governance to the government for necessary action.

The panel called for radical changes in the functioning of banks, including those within the top management and running of boards.

Some of its major suggestion are splitting the position of chairman and managing directors of the PSBs, giving longer fixed terms to the top management, paying them market prices as remunerations and having a transparent, merit-based system of appointments on the boards.

"We have to change the appointment process and expand the talent pool for management and boards of public sector banks, it has to be much more transparent and driven by people with strong capabilities.

“We have to strengthen board oversight and powers, boards have to be empowered and made more accountable," Rajan said.

The comments come amidst a slew of scandals plaguing PSBs involving top management.

Last month, the CBI had arrested Syndicate Bank CMD S K Jain for allegedly receiving a bribe of Rs 50 lakh (Rs 5 million) from Bhushan Steel to enhance the steel firm's credit limits.

Rajan also asked for a review of the compensation for the board members, saying that the risks which the members take should be assessed better.

"We have to change the appointment process and expand the talent pool for management and boards of public sector banks.

“It has to be much more transparent and driven by people with strong capabilities.

“We have to strengthen board oversight and powers, boards have to be empowered and made more accountable," he said.

Rajan flagged human resources as a major area of concern at state-run banks in the next few years, and specifically expressed concern about the lack of power at the mid- management level.

"There is a mid-management gap and we have to find ways to fill it through hiring, may be even lateral hiring, through appropriate pays and incentives," he said.

Bank unions have been traditionally opposed to lateral hiring.

Rajan's attempts to get a chief operations officer at the central bank through lateral hiring have also faced stiff resistance from the various unions at the RBI.

Meanwhile, talking to reporters on the sidelines of the same event, State Bank of India chairman Arundhati Bhattacharya said the bank has been doing lateral hiring, and that SBI has in fact done it from the scale-3 level upwards, right up to the GM level.

She said: "We have recently hired a chief technical officer.

“The problem with the lateral hiring is that it is difficult to get good people at the pay scales that public sector banks have.

“If you really want to get good people then you have to give them market related salaries.

"And if you give them market related salaries you have to hire them on contract, you can't take them against sanctioned vacancies.

“So, people who are coming they always have some kind of concerns because if I bring them in contract there is no surety the contract gets renewed."

But she also wondered as to why such worries were there in joining PSBs when they are faced with the same type of uncertainties in the private sector as well.

"So even they come on contract to the public sector they should think of it accordingly," Bhattacharya said.

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