The chairman and managing director of Punjab National Bank (PNB), K.C. Chakrabarty, will take over on Monday as a deputy governor of the Reserve Bank of India (RBI), six months after V. Leeladhar stepped down. Why did the government take so long to identify and appoint Leeladhar’s successor at a critical time when companies and individuals have been demanding cheaper loans and the banking system’s stressed assets are increasing?
Was Chakrabarty reluctant to take over the assignment? If indeed that had been the case, was there no one else in the commercial banking community willing to become a deputy governor? Or was the delay because of the usual bureaucratic lethargy?
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RBI initiated the process of finding Leeladhar’s successor immediately after his retirement by forming a search panel, the first in its 73-year history. RBI governor D. Subbarao and former finance secretary Arun Ramanathan were among the panel’s members.
A petition filed by a former executive director of RBI in the Delhi high court against the government of India and the RBI governor, challenging the appointment of Usha Thorat as a deputy governor, prompted the central bank to form the panel. P.K. Biswas, the former executive director, had argued that he should have been made the deputy governor, but was superseded by Thorat, a junior colleague. Both Biswas and Thorat joined RBI in 1972, but Biswas was placed higher on the merit list. The Delhi high court refused to quash Thorat’s appointment, but directed the RBI governor to have a “comparative assessment of the suitability and performance of all eligible candidates” while choosing a deputy governor.
In January, the search panel interviewed three bank chief executive officers (CEOs)—Bank of India’s T.S. Narayanasami, IDBI Bank Ltd’s Yogesh Agarwal and Canara Bank’s A.C. Mahajan.
New role: KC Chakrabarty will take over on Monday as a deputy governor of the central bank. Pankaj Nangia / Bloomberg
In February, three more CEOs—Union Bank of India’s M.V. Nair, Bank of Baroda’s M.D. Mallya and PNB’s Chakrabarty—were interviewed. All these three, along with State Bank of India chairman O.P. Bhatt, had earlier expressed their lack of interest in the post.
Typically, such panels recommend more than one name, and since it is an RBI appointment, these names first get endorsed by the finance ministry and are then forwarded to the Prime Minister’s Office for its seal of approval. Two names that the panel at end-February recommended for the deputy governor’s post were Chakrabarty and Narayanasami, in that order. Why did the government take three months to act on it? Possibly, the bureaucrats at the finance ministry, involved in the movement of such files from one department to another, know the answer. There are quite a few theories that have been doing the rounds explaining the snail’s pace at which this particular file moved. One such theory says Narayanasami had the backing of former finance minster P. Chidambaram and he would have been made a deputy governor but for governor Subbarao’s insistence on Chakrabarty. Those who know Chidambaram well rubbish this theory, saying he would not play favourites in making such critical appointments. Another theory says there was intense pressure on Chakrabarty from the bureaucracy to withdraw from the race as that was the only way Narayanasami could have been made a deputy governor.
Narayanasami was chairman of the Indian Banks’ Association, a national bankers’ lobby, by virtue of being the senior-most banker. Bank of India is the third public sector bank that he headed, after Andhra Bank and Indian Overseas Bank. PNB was Chakrabarty’s second stint as a CEO. He headed Indian Bank between 2005 and mid-2007. Both of them are competent professionals, and one would have expected the ministry to handle the appointment with more maturity.
I don’t know what exactly happened in those three months—between the panel making its recommendations and the government naming the new deputy governor—but the timing of the appointment gives credence to some of the stories of pulls and pressures that one hears. Chakrabarty’s appointment was cleared after Narayanasami retired from Bank of India. Under existing norms, a retired bank chairman cannot be considered for a deputy governor’s post.
While no search panel has yet been set up to look for a successor to another deputy governor, Rakesh Mohan, the government needs to identify bankers for the top jobs at PNB and Bank of India. Alok Misra of New Delhi-based Oriental Bank of Commerce, S.K. Goel of Kolkata-based United Commercial Bank and bureaucrat-turned-banker R.R. Singh, who heads Punjab and Sind Bank in Delhi, are in contention for the PNB job. If Singh, an Indian Administrative Service officer of the Andhra Pradesh cadre, who has done a good job at Punjab and Sind Bank, is chosen to head PNB, Misra or Goel may head for Bank of India.
Is the experience of running a bank necessary to become the head of large banks? There is no codified norm on this even though the current CEOs of relatively large banks had all managed other banks before. For instance, before assuming charge at Bank of Baroda last year, Mallya was the chief of Bank of Maharashtra. Similarly, Nair headed Dena Bank before shifting to Union Bank and Mahajan was the chief of Allahabad Bank before his current assignment at Canara Bank. But it doesn’t always happen this way and there are many instances of executive directors being chosen to head large banks.
A transparent appointment process will put an end to behind-the-scenes lobbying. Also, the government should closely monitor the performance of CEOs and show the door to non-performers. For some banks, CEOs are their biggest non-performing assets.
Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as a deputy managing editor of Mint. Please email your comments to email@example.com