You get monkeys if you pay peanuts. Senior public sector bankers who manage around 70% of the industry in Asia’s third largest economy are no monkeys. They have been making handsome profits and distributing hefty dividends to the owners. Their motivation, historically, has been the pride associated with running such banks, and the government, the majority owner, has been exploiting this. Reserve Bank of India governor D. Subbarao has now called for closing the wide gap between salaries paid to senior public sector bankers and their counterparts in private and foreign banks to create a level playing field and stop the outflow of talent from the state-run banks.
How wide is the gap? O.P. Bhatt, who heads State Bank of India, the nation’s largest lender, earned Rs 16.51 lakh last year. In contrast, Aditya Puri, chief executive officer and managing director of HDFC Bank Ltd, earned Rs 3.4 crore. Bhatt managed a consolidated asset base of Rs 14.5 trillion last year and posted a net profit of Rs 11,734 crore. HDFC Bank’s assets were to the tune of Rs 2.2 trillion and its net profit was Rs 3,004 crore. While nobody will grudge Puri’s annual compensation package as he has been doing a fantastic job, the chief of India’s largest bank should definitely deserve much more than what Puri gets.
Flight of talent is only one of the consequences of poor pay packets. Instances of corruption involving senior bankers, being referred to investigative agencies, are also on the rise, even though the absolute number of such cases isn’t alarming. It’s also not rare to find a public sector banker who is too willing to travel overseas on one pretext or the other as such tours fetch a per diem of $500. The root cause of all these is poor compensation for an extremely demanding job that involves managing money and taking risks. The pay packets of chairmen and executive directors of state-owned banks should at once be delinked from the Central pay commission, as their appointments are contractual. Besides, there should be a manifold increase in their performance-linked incentives.
Currently, the best performing bank chairmen get Rs 8 lakh and executive directors Rs 6 lakh as annual bonus—less than what a junior officer in a private bank earns. Pay them well and fire the non-performers.
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