The government has rejected a suggestion to discontinue with lateral hiring of chairmen and managing directors (CMDs) at large public sector banks (PSBs). A committee for selecting PSBs chairmen had recommended that executive director of a large bank should be preferred to head a large bank, instead of the current practice of promoting CMD of a small and mid-size PSB to lead a large bank.
The selection committee comprises of the RBI governor, one deputy governor, secretary of the department of financial services and two external experts.
The department of financial services sought approval of finance minister P Chidambaram, who took charge on August 1, to implement changes in the CMD selection norms, and to appoint three executive directors as CMDs.
Sources said the government will continue with the existing criteria of merit-based selection which gave preference to lateral hiring.
As per the existing norms, a bank executive should have completed at least one year as chairman of a smaller bank and have minimum two years of residual service to head an A grade state-run bank.
Three large PSBs will have to appoint CMDs as incumbents Bank of India's Alok K Misra, Bank of Barodas MD Mallya and Canara Banks S Raman will retire this year. Under former Finance Minister Pranab Mukherjee regime, the selection committee had short-listed three executive directors for elevation to the post of the CMD.
Sources said this short-list may now have to be reviewed. This would brighten prospects of the heads of Indian Banks TM Bhasin, Uco Banks Arun Kaul and Indian Overseas Banks M Narendra to lead the large banks, industry sources said. The government, though, may tweak other selection norms giving a fixed tenure of 5 year to the bank CMDs.
Finance minister approves names of candidates short-listed by the selection committee.
These names are then sent to appointments committee of cabinet for clearance, followed by approval of the Prime Minister. State-owned lenders are dominant players in the banking sector and 26 PSBs account for nearly 80% of the banking credit in the country.
Total gross advances of PSBs stood at R35.46 lakh crore at June-end 2012, while new private sector banks had gross advances of R6.75 lakh crore at June-end 2012, as per data tabled by Minister of State for Finance Namo Narain Meena in Lok Sabha on Wednesday.