Bankers, proxy firms question sudden orders for transferring CEOs of PNB, BOI

Mumbai: Bankers and proxy firms have questioned the government’s recent move to transfer the heads of two large state-owned banks without any reason. It raises governance concerns, they said. A week ago, the Appointments Committee of the Cabinet (ACC) headed by Prime Minister Narendra Modi announced a major reshuffle in the top management of seven public sector banks, which included the transfer of Usha Ananthasubramanian to Allahabad Bank and Melwyn Rego to Syndicate Bank.

While Ananthasubramanian was the chief executive officer at Punjab National Bank (PNB), Rego was heading Bank of India.

While the notification said that Usha will move immediately, Rego will be on a compulsory waiting period till the current chairman of Syndicate Bank retires in June-end. Rego’s successor Dinabandhu Mohapatra has already taken charge at Bank of India.

Many in the banking circles view these changes in the top management as abrupt and unprecedented. The two CEOs were appointed after going through a public selection process in March 2015 wherein the government had invited applications from the private sector for the top jobs in state-run banks. All those appointed at that time were given a fixed tenure of 3 years subject to normal age of superannuation of 60 years.

While it is not clear why the government decided to suddenly replace these senior bankers before the end of their fixed tenure, many experts question the ad hoc manner in which the decision was taken. “Even the board was not informed about this decision until a few hours before the announcement was made,” said a senior banker with Bank of India, on the condition of anonymity.

Sadly, even the Bank Boards Bureau (BBB), an independent body set up by the government to improve the governance in PSU banks, was not consulted before the decision was announced.

On Friday, The Economic Times reported that H.N. Sinor, a member of BBB, resigned after these surprise changes were made without consulting the panel, citing people it didn’t identify.

Typically, selection and appointment of managing directors and CEOs as well as non-executive chairmen of PSBs falls under BBB’s mandate. “We were not consulted before the changes in appointments were announced,” confirmed Vinod Rai, chairman of BBB.

Is performance of these officials, therefore, a reason for the sudden transfer?

Usha took over as managing director and CEO of PNB in August 2015. Between September 2015 and December 2016, the bank’s gross non-performing loans have jumped 123%, with PNB reporting a loss of Rs5,367 crore in the March quarter. Similarly, IDBI has seen a 138% increase in gross non-performing assets (NPAs) since Rego took charge. In fact, the bank reported a loss of Rs2,254 crore during the quarter ended December 2016. To be fair, the performance of almost all banks suffered during this period due to the impact of RBI’s Asset Quality Review which took place in December 2015.

“It takes a leader a certain amount of time to become functional. Transfer over short period will never benefit banks,” said Ashwin Parikh, managing partner, Ashvin Parekh Advisory Services Llp.

This is not the first time that the government has removed senior officials without any explanation. A month ago, the CEO of IDBI Bank was swapped with the chief of a smaller bank in a bid to bring in stable leadership with a longer tenure to help turn around the troubled bank, said senior bankers.

Such sudden changes, however, have not gone down well even among the employees’ unions.

“The Government which talks more of governance is not expected to deal with top executive in this fashion. This will demotivate them and demoralise them at a time when banks are facing multiple challenges and these top executives are expected to play a dynamic role in leading the banks for turn around,” said C.H. Venkatachalam, general secretary, All Indian Bank Employees’ Association.

Over the last two years, public sector banks have been hit the hardest by mounting bad loans that have eroded profitability. As of December 2016, the gross NPAs in PSU banks soared to Rs6,14,871 crore compared to Rs4,18,427.43 crore a year ago. On one hand, the government has identified 10 such weak banks and sought a turnaround plan, which would meet some stiff targets set by them, on the other, the Reserve Bank of India is in the process of initiating a Prompt Corrective Action Plan on those banks which have breached threshold limits on capital ratios, profitability and asset quality. Failure to meet any of the norms can trigger action such as strictures on lending and branch expansion, change in management and reduction in assets.

While both the regulator and government step up efforts to bring about a turnaround of these state-owned banks, measures like the demotion of senior officials throw a poor light on the governance standards in these banks. “This has been a recurrent issue with public sector entities. Appointments at the board level are made at the whims and fancies of bureaucrats of different ministries,” said Shriram Subramanian, founder and managing director, InGovern Research Services Pvt. Ltd.

Shriram added that these PSUs have always flouted the basic governance norms which apply to other companies, like having the requisite number of independent directors and women directors on its board. “It is, therefore, important that the government define its role as a shareholder and regulator,” he added.

In fact, this was the mandate of the PJ Nayak Committee set up in 2014, which recommended the creation of a bank holding company structure to curb the government’s interference in PSU banks. While the government has partly implemented its suggestion of setting up the BBB, it is still mum on other issues which require legislative changes. “The government is in a tearing hurry to solve the NPA crisis and in this process it is making a mess of the governance in PSU banks,” Shriram added.