BackBank Board chief Vinod Rai hints at major overhaul in the banking system
Efforts are on to ensure that top officials of state-run banks are appointed to lead these institutions only if they have a remaining tenure of six years, says Vinod Rai
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New Delhi: Indicating that a major overhaul of the banking system is on the cards, Banks Board Bureau chief Vinod Rai on Thursday said the organization is trying to ensure that top officials of state-run banks are appointed to lead these institutions only if they have a remaining tenure of six years.
The compensation packages of officials in state-run banks may also be overhauled to provide a more flexible variable component including bonuses, employee stock options (ESOPS) and performance-linked packages to attract professionals to join these banks.
“The compensation package of the public sector banks needs to be improved. We may not be able to do much about the fixed component but we can change the variable component. From the next financial year, we should be able to introduce bonuses, ESOPS, and performance-linked packages. The idea is to provide monetary and non-monetary incentives to attract professionals at all levels in the banks," Rai said at an event organized by industry body Assocham.
He said the idea behind a longer tenure was to ensure accountability of these individuals for the decisions made in their tenure.
“Efforts are on to appoint executive directors or whole-time directors or chief executive officers at an age where they have a minimum of six years or more to go in the institution. If we provide a six-year tenure, they will be subject to a greater degree of accountability," he said.
“A large number of problems have risen because the tenure of the people was very short, maybe 15 or 18 months. They left behind a trail of decisions that are being questioned now," he said.
The Banks Board Bureau started functioning on 1 April 2016 with a mandate to revamp state-run banks. The bureau was an attempt to separate the functioning of these banks from the government by creating an entity that would act as a link between the two. It was tasked with making appointments in state-run banks as well as coming up with the right fit for possible mergers.
Ananda Bhoumik, managing director and chief analytical officer at India Ratings and Research, said these steps are in the right direction but many more such steps are needed.
“Providing a fixed tenure to senior management will bring in stability. Incentives and fixed tenure will help attract talent," Bhoumik said.
Rai added that the road map for consolidation in the banking system is being prepared and will be announced in due course of time.
The attempts by the Banks Board Bureau to revamp the banking system come at a time when banks are saddled with high levels of bad debts and have even reported losses this financial year as they look to clean up their books. They are also likely to require higher amounts of capital in the next financial year though demonetization may have a positive impact on their balance sheets.
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