Change in Procedure for the Selection of Higher Bank Official

28 October 2014 (AIR Money Talk) (Important for UPSC Pub Ad- Paper II)

A K Gupta, Director, Banker Training Institute and Urimi Goswami Economic Journalist

GIST:

Govt. – Cancelled selection of 8 CMD & ED of PSU Banks – in the process – decided to introduce New System – discrepancy came up – arrest of 1 designated CMD by CBI over graft charges; Repeat selection process – to fill the vacancy; FM Arun Jaitley written to RBI – consider devising a New System;

Selection process came to question – 50 Lakh Bribe from Corporate – couple of issue

1. Transparency, 2. Person with Integrity for ED & CMD Post, 3. Capability aspects (Performance)

RBI Guidelines for the Directors of the Banks: Transparency + Integrity + Capability;

What is the Measure for Integrity?

After clearance from appointment committee – cross check vigilance – Past conduct / Past Records (Guide towards the Future) – Role from CVC level – Interviewer cannot judge ‘ Integrity’ of a person per se – scrutiny by govt. mechanism should be more rigorous;

Vision for the Bank – performance (of CMD) – appointment based on seniority – restricting the pool of best people – it avoids further mobility (why not to include best person from RRB, Rural Bank, Pvt. Banks)?

Perspective of commercial bank different from the Perspective of Region Bank (RRB) – people from those banks cannot fit in;

Banks that are commercial by nature e.g. Pvt. Bank, open to the process – 1975 - P L Tandon – Not a Banker, but Management Professional – become Chairman of PNB (Leading Bank in that time); Field open (CMD & ED) to the other Management Professional/ Non Bankers;

Improving Transparency in the selection process? Favoritism? Nepotism?

1. More weightage to? Past performance (Performance Appraisal) Vs. Potential (to the Interview)

2. Selection by Human (Part of the Committee) – whose Integrity is beyond doubt – Integrity of those involved is not fair to be questioned – Keeping field open would get more performance oriented personnel;

3. Salary structure of PSB at such a senior level – who take decision on Million & Billions – is like peanut size compared to the counter part of Pvt. Sector; examining this aspect is essential at this current scenario;

Rethinking in the Remuneration prospect – percolate to the entire Banking system – there must be Advantage / Special privileges to CMD/ ED of Public Sector Banks?

Remuneration comparable to the responsibility – PSB vis-à-vis with Pvt. Bank – is almost same;

Added Responsibility – Social Responsibility – must carry out the Govt. View point also in addition to the commercial Banker;

So compensation package compared to the IAS officers – then in that case may there be problem - Govt. function & Commercial functions should be treated at their part;  

Current Selection committee – comprises of Secy. Of Expenditure, Secy. Of School Education and RBI Governor – is it required to change the panel if better function / better selection? Bringing more experts in to the panel?

It is not Selection Committee – it is the committee to make recommendation on the system improvement – RBI Gov. Not part of Selection committee – he come in part in the later stage/ or may nominate Depy. Gov. in his place; in case of strong reservation against somebody he may, but being a regulator of Banking system, RBI Gov. never involve in the selection process;

Govt. to Reviewing selection process - Currently who is in the committee?

With 51% Govt. Share in PSB – they hold the key for the appointment of CMD / ED;

Fin. Secy, Secy. Of Financial Service, Academician (with more experience), RBI representative (Overview the process);

Shaping the New selection process?

Panel – chairman are picked and posted to the Banks – in Smaller Banks;

Rigorous Background check? Is it a missing link?

1. CVC must do the Background check of concern CMD;

2. Changing precedence of a person is tough to predict;

3. Alleged charges on the person – need to be proved;

4. Collecting information in much better way; one out of many cases might go wrong despite the rigorous CVC scrutiny;

Addition things – for a good selection process?

1. Very old person should not be made CMD /ED – person with fairly large amount of service left should be considered – so that they long way to go motivated to have the kind of performance;

New system to get more talent from outside?

In consolidation, essential things for new system

1. Large pool of person 2. Rigorous background checks 3. Performance