There are six chairmen among the current bunch of chiefs of public sector banks (PSBs) who have come from one bank. Of them, three head the largest of these banks.
Assuming that the pool of executive directors from the 29 PSBs has roughly the same age distribution, it should stand to reason that the selection of the chiefs should also be equally distributed. This is because, other things being equal, it is usually the length of service left that determines the choice of the chairmen of these banks. But when six of these come from India?s smallest PSB?Corporation Bank?there must be an extraordinary grooming programme going on in that bank which makes them hit the bulls eye so regularly. Incidentally, one of the prot?g?s of Corporation Bank had also moved up to the position of deputy governor.
Possibly, this is something that the vocal RBI deputy governor KC Chakrabarty should turn his attention to instead of railing at these banks, for the misdemeanours of the broader system. Because more than how these banks behave, the broader issue is how RBI approaches institutional issues in the banking sector, chasing will-o?-the-wisps. It is these aberrations that possibly encourage banks to pick up shortcuts.
Possibly, at this stage, RBI would like to re-examine why, despite the recommendation of the Narasimham committee (II) in 1998, few PSB chiefs except from the batch of Corporation Bank ever get a term of five years at the top. Chakrabarty himself had less than two years at PNB. The same point has again been made by the Khandelwal committee set up in 2009 by the finance ministry that suggested a term of at least four years for PSB chiefs.
Yet, as no PSB appoints it own chief, much less decide his term, the onus has always been on the finance ministry and possibly RBI. As any bank insider would confess, the only reason why so many made it to the corner rooms from this bank is because this one promoted a large number of officers to the rank of general managers much faster than their compatriots through the larger banks. Yet, at that stage, RBI or the finance ministry never bothered to rectify the obvious anomaly this was creating in the system.
But more than just a one-bank-led aberration, there is also a larger disease. All senior employees of PSBs typically cut their umbilical chord with their parent organisation once they become executive directors, the rank just below that of the chairman. Ironically, this is the stage when they can contribute the most to the banks, but once they start floating among the banks, the chief concern then becomes how to avoid big accounts turning into non-performing assets even as they work with teams whom they hardly know.
This is possibly the reason why some of the bank chiefs may want to window-dress their initial quarterly results, to leave room for substantial improvement later on, as Chakrabarty has pointed out. One of their favourite tricks is to show a jump in provisioning. His other charge, that banks are biased in favour of bigger clients shepherding them into corporate debt restructuring, again to avoid the pressure of the loans becoming non-standard, too has its root in the political appointment process outside the boardrooms of banks.
For instance, after taking over as the chief of PNB in 2007, Chakrabarty said the bank?s total loan slippages had risen to over R2,000 crore in the first six months of 2007-08. This, he said, compared unfavourably with the R2,000 crore slippage of the bank in the full year of 2006-07. Incidentally, he gets the credit as the one who has blown the whistle on this practice but after becoming the deputy governor at RBI.
This then brings us to the latest hobby horse of RBI. This is the topic of financial inclusion. As most bank chiefs freely admit, it is not a profitable business at the moment. This is not surprising, as it will take time to mature.
What is surprising is why RBI shows far less zeal in providing credit to SMEs, which is a far more bankable segment of the economy. True, there are enough noises made in the monetary policies and other documents. But some things stand out. For instance, the latest priority sector guidelines have laid down a clear target of 18% of credit to be directed to the agricultural sector. As successive banks have found out, given the size of the agro sector, which is already lower than 14% of GDP, it is going to be a tougher target to meet, especially as the regulator has set a cap on indirect exposure to the sector. There are no targets for the SME sector, however.
Right now, for example, RBI has asked all chairmen of banks (public and private) to show how well they have drafted the financial inclusion plans for this year. It?s a stiff one as only seven months of the year are left and Chakrabarty?s team has demanded personal appearance of the bank chiefs for the task.
When was the last time the credit needs of SMEs got a similar treatment? Yet those are bankable and success is far more assured from that sector. There are, in fact, several segments of the Indian economy that need banking support before we reach the poorest of them all. While it is obvious that the politicians will not often have this perspective, the banking regulator can hardly take that position.
On a similar note, one understands there are applications from specialised venture capital institutions from abroad that want to set up banks in India. They are clear they will deal only with the SME sector. But few of them can promise the spread of agricultural credit et al as the banking regulations demand. So their applications would be rejected summarily.
This is despite clear evidence that Sidbi and other current institutions have left several swathes of white patches in their coverage of these sectors. Additional competition always helps, as the banking sector itself has shown us.
If cooking books, playing around with appointments or cocking a snook at financial inclusion is something that banks, especially PSBs are guilty of, those are serious charges. But before Mint Street and North Block fulminate against these weaknesses, it will be wise to wonder how regulatory forbearance over the years has built these, more than any specific guilt of the banks themselves.
subhomoy.bhattacharjee@expressindia.com
