One needs guts to be CEO of a public sector bank

One needs guts to be CEO of a public sector bank
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First Published: Mon, Mar 31 2008. 12 30 AM IST
Updated: Mon, Mar 31 2008. 12 30 AM IST
The chairman and managing director of Bank of Baroda (BoB), A.K. Khandelwal, will step down on Monday. He is one of the nine CEOs of public sector banks who will retire this year. The?others?are C.P. Swarnkar?of Syndicate Bank, M.B.N. Rao of Canara Bank, P.P. Mallya of Vijaya Bank, K. Ramakrishnan of Andhra Bank, P.K. Gupta of United Bank of India, B. Sambamurthy of Corporation Bank, P.L. Gairola of Dena Bank and H.A. Daruwalla of Central Bank of India.
Khandelwal was at the helm for three years at BoB. He had headed another Mumbai-based bank, Dena Bank, for one year. Before he moved to BoB, he was chosen to head the Kolkata-based Allahabad Bank,?but he declined the offer. A great believer in HR activities, Khandelwal opened a 24x7 chairman’s helpline in BoB where any of the bank’s 34,000-odd employees across India could call and seek the CEO’s guidance on personal and professional issues. Among other things, he has given greater visibility to the bank (he picked former captain of the Indian cricket team, Rahul Dravid, as BoB’s brand ambassador) and made the trade unions irrelevant in the overall scheme of things. Literally, there is no room for the trade unions to hold their office at the BoB headquarters in Mumbai’s Bandra Kurla Complex.
Not too many banking professionals would love to be in Khandelwal’s shoes. Apart from focusing on other things such as product innovation and customer services, and managing money well, a public sector bank CEO in India has to fight the trade unions and the government, the majority owner of these banks, for every thing — small and big — ranging from the transfer of people to interest rate on farm loans.
Punjab National Bank (PNB) had earlier wanted to break away from the industrywide wage pact. The New Delhi-based bank wanted to bilaterally settle the issue with its employees. This would have benefited its employees as being a large, profit-making bank, PNB can afford to pay more than many of its peers. But last week, the bank’s management changed its stance and gave the go-ahead to the Indian Banks’ Association to broker the wage pact with its employees and officers on behalf of the bank. PNB chairman K.C. Chakrabarty would not admit it, but it’s not improbable that the bank has done this under?pressure from the government.
The trade unions have been agitating against the PNB management and no government would like such things, particularly when Parliament is in session. The All India Bank Employees’ Association, the largest employees union in the banking sector, is affiliated to the Left Front and the coalition government at the Centre cannot afford to fight with the union, particularly when elections are around the corner.
Trade unions are one of the many critical issues that the gutsy CEO of a public sector bank has to tackle every day. And, the playing field is not level vis-à-vis the private players. For instance, foreign and private banks can outsource many activities ranging from origination of home and car loans through direct sales agents (DSAs) to recovery of bad loans, but public sector banks cannot do so. They can outsource very few services, and that too if the trade unions agree. Normally, the unions are never comfortable with banks outsourcing anything as they are always scared of employees losing their jobs. For private banks, outsourcing radically brings down the staff cost as existing labour laws do not force them to pay DSAs as much as the regular employees.
Indeed, the public sector banks have wider reach by virtue of their presence in rural India, but this is of no help when it comes to business. In metros and large cities, they fight with private banks for deposits and pay high interest rates. They do not need to pay high rates in rural India where private banks are not present, but under the banking law they cannot follow a differential interest rate policy. This means, their presence in rural India is no advantage as the cost of money is the same everywhere even though their administrative cost is higher in rural pockets. The public sector banks also cannot pay less to their employees in rural India, where the cost of living is much less compared with metros, as under the wage pact, they need to pay uniform salary across India. The scene will change radically, if the Reserve Bank of India (RBI) allows banks to pay differential interest rates on deposits in different geographies and the trade unions accept differential wages and salary in different parts of the country.
Also, unlike their counterparts in the private sector, CEOs of public sector banks need to spend a lot of their productive time and energy meeting various parliamentary panels round the year and translating all board resolutions in Hindi. Finally, they are also required to lend money to the sectors where the government wants them to lend and at an interest rate dictated by the government.
M.D. Mallya, chairman and managing director of the Bank of Maharashtra, will replace Khandelwal at BoB. One hopes that the government notifies his appointment on time and he is able to catch a flight from Pune to be at the BoB headquarters on Tuesday morning. Often such notifications are issued late and the new chairman (unless he is an insider) has to rush to the nearest bank branch to complete the joining ceremony. This is because nobody wants to lose their seniority even by a day. In public sector banking industry, seniority is the key — to move from a small bank to a big bank, and from a big bank to RBI as a deputy governor.
Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as the Mumbai bureau chief of Mint. Please email comments to bankerstrust@livemint.com
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First Published: Mon, Mar 31 2008. 12 30 AM IST