How does the government of India, majority owner of public sector banks that roughly account for 70% of the banking industry and a key growth driver in the world’s 10th largest economy, choose the chief executives of such banks? A peek into the board room at the Reserve Bank of India’s (RBI) regional office on Delhi’s Parliament Street on 11 February would have given you an idea. On that day, a committee consisting of Rajiv Takru, secretary, department of financial services; Anand Sinha, deputy governor, RBI; Jagdish Capoor, former RBI deputy governor; and Debashis Chatterjee, director, Indian Institute of Management, Kozhikode, interviewed 18 executive directors (EDs) for nine posts of CEOs that will fall vacant between now and January 2014.
The original idea was to interview six EDs between 9am and 11am, another six from 11am till lunch and the rest in the afternoon, post lunch. But, for some reasons, the committee could not start interviewing the candidates before 10am and by lunch time only seven of them had their turns. The post-lunch session started at around 3.30pm and since 11 candidates were to be accommodated, the panel could hardly spend more than 10 minutes with any one.
By the end of February, the list of successful candidates was ready and the office of chief vigilance commission is now screening the names. Those who could not make it to the final list are upset and some of them allege that the eligibility criterion for the candidates appearing before the panel was tweaked to accommodate at least a couple of them. How has this been done? Typically, EDs of nationalized banks, deputy managing directors of IDBI Bank Ltd and the managing directors of associate banks of State Bank of India are called for such interviews, provided they have completed two years in the current position and have a residual service of two years as on 1 April of a financial year in which vacancies arise.
The allegations are that quite a few of the candidates in the list of 18 have not completed even one year of service as an ED and have less than two years’ service left. Indeed, the government relaxed the eligibility criterion to six months of completed service and 21 months of residual service but it is entitled to such relaxations when it does not find enough candidates to compete for the vacancies. Under norms, the number of candidates interviewed for such positions should be one and a half times the number of positions vacant. This means, for nine vacancies, at least 15 candidates should be interviewed. The norms were relaxed as the banking system does not have 15 executive directors with two years of completed service and have two years to retire. Three more candidates were added to the list who appeared for interview last year but could not make it.
Indeed, there is nothing illegal about calling relatively junior professionals for the interview and even selecting them, but the question remains how does one pick the right candidates to head a bank in 10 minutes? The typical questions asked in such interviews are on financial inclusion, risk management, implementation of Basel III international banking norms and so on, which any smart business school student can answer without a blink. Another critical factor to consider is 70 of 100 marks—the maximum which a candidate can score—comes from a professional’s confidential reports of past seven years, signed off by the proximate boss. Since very few candidates have had a two-year tenure as ED, confidential reports of the past seven years mostly pertain to their career as general managers and deputy general managers. Even if one gets full marks in such reports—which most of them have got —how realistic is the idea of making this a key contributor to their promotion to a position that involves running a bank? At those levels, a professional handles only a part of banking business such as loan, treasury, resources or risk management and excellence in any of these doesn’t necessarily guarantee a broad vision, leadership and understanding of macroeconomy required to run a bank.
Selection of the CEO is only the first stage of an imperfect system. At the second stage comes the selection of banks such CEOs will head. Should an ED first be made the chairman of a small bank and only after the government is convinced about his competence, should he be given the top job at a big bank? Or should one straightaway be made the head of a large bank? There is no rule for this.
It is high time the government puts in place a credible and transparent appointment policy for such banks. There are many ways to do it—expanding the talent pool by inviting applications from the market, giving weightage to seniority as well as professional brilliance and making all eligible candidates go through intensive grilling, including group discussions.
A wrong choice of CEO can kill a bank and yet the government is not willing to show professionalism in its approach when it comes to appointment of CEOs of the institutions which it owns. Unit Trust of India continues to remain headless for two years even as its business has been shrinking. Another glaring instance is the appointment of former chief of the Life Insurance Corp of India (LIC) T.S. Vijayan as the country’s new insurance regulator. In 2011, he was demoted to the position of managing director of LIC at the end of his five-year term as chairman since the government did not find him suitable to continue at the top. Both decisions— his demotion two years ago and being made the insurance regulator now—cannot be right. But it’s too much to expect from the government to own up to its mistakes.