The silent rise of the public sector banker in private bank boards

To a smaller extent, state-run banks are also seeing a similar influx from the private sector, as they seek complementary skills to compete better for customers.

Boards of several top private banks are led by former public-sector officials, either from the Reserve Bank of India (RBI), or the civil service. Chairmen of Axis Bank, Federal Bank and AU Small Finance Bank were previously with RBI, while those of HDFC Bank and ICICI Bank are retired IAS officials.

“There is ‘publicization’ of private-sector banks happening currently," the chief executive of a private-sector bank said on the condition of anonymity.

In several cases, directors also are from public-sector banks or RBI. At Axis Bank, five out of 13 board members are from the public sector, including two retired RBI officials, two senior public-sector bank officials and one former Life Insurance Corporation of India Ltd official, who is a nominee director. Similarly, Federal Bank has two former RBI officials and two former State Bank of India (SBI) officials. Yes Bank has three retired bankers, including two nominee directors of SBI, and a former RBI official as chairman. Both HDFC Bank and ICICI Bank have four board members from the public sector, while RBL Bank has five.

“Given the focus on governance and scrutiny, board-level committees are looking for people with more banking experience. Professionals from state-run banks have a better understanding of processes and banking regulations. Given that they have worked across scale, they also bring in banking wisdom. This becomes important in the current environment, which is not only dynamic, but there is a lot of public scrutiny as well," the HR head of a private bank said.

Banks’ directors and top executives are selected by the board’s nomination and remuneration committee (NRC); the board proposes these names to RBI, which closely scrutinizes them, before accepting or rejecting these names. Sometimes, RBI approves the names with a term lower than what the bank proposed.

“PSU (public-sector undertaking) bank managements are eager to learn and improve the way they do things, and are hence open to inputs and suggestions on how to do things better," said Srinivasan Varadarjan, chairman, Union Bank. “Of course, they have their own priorities and pressures, but the management tries to implement whatever they can. Business reviews are a larger part of PSU bank board discussions than they are at private-sector banks," he added.

“Private-sector bankers typically have not taken on bank board assignments. Keeping in mind the responsibilities it entails and the comparatively lower compensation, they choose to take non-bank private sector mandates," Varadarajan added.

According to the HR head cited earlier, RBI also prefers more board members with banking experience, though it doesn’t insist on the same.

This is a far cry from the complexion of private-sector bank boards a decade ago, when the only retired bankers on boards were the ones nominated by RBI. Eleven private banks currently have at least one retired RBI official or public-sector banker on the board.

Officials joining from the public sector are well-versed in compliance matters, and bring rigour to committee meetings, bankers said. At the same time, a director’s role offers a good post-retirement option for many experienced bankers, with potential salaries up to ₹30 lakh a year.

“Private-sector bankers are not keen to hold these positions as they feel they will be held responsible for all bank-related matters. Also, the remuneration does not match their expectations," a bank chairman said on the condition of anonymity.

Meanwhile, some public-sector banks have also seen a reverse flow from the private sector. Chairmen of Punjab National Bank, Union Bank of India and Canara Bank are from the private sector.

“Considering that RBI has been insisting on compliance, there is a huge demand for former central bankers on the boards of private banks. Governance is also one of the main themes on the regulator’s agenda. So, these bankers are able to interpret regulations and help these banks with regards to compliance," said a former RBI executive director, who is currently on the board of a bank. “Similarly, SBI officials too are in great demand, as SBI follows strong processes and have great systems in place. Private banks need to have strong systems in place," he added.

Typically, private sector officials join PSU banks hoping to make a difference. They bring in expertise in niche fields like information technology and regulation, and an ability to innovate and think differently. A nudge from the finance ministry also pushes them to take on such roles.

“While private sector banks are appointing retired civil servants and retired central bankers on their boards, state-owned banks are appointing people from the private sector as chair. Both sets are looking for skills that they don’t have. Private sector for regulatory connect and PSU banks for a different mindset," said Amit Tandon, founder & managing director at proxy advisory firm IiAS.

Driven by intense competition, private sector banks are also ahead of state-run peers in digital innovations, financial products and customer service, and reward their top executives handsomely. HDFC Bank’s chief executive Sashidhar Jagdishan was India’s highest paid bank CEO in FY23, earning ₹10.55 crore. PSU banks expect such executives to bring new skill sets to the board room.

“Private sector representatives bring an innovation mindset, be it in terms of processes or products," a former chairman of State Bank of India said on condition of anonymity. “They have a sense of purpose and are target-oriented, because they are incentivized accordingly. So, it helps to bring private sector officials to the boards of PSU banks," the former banker added.

In 2015, the government had experimented with lateral hiring of PSU bank CEOs, appointing former Citibanker S. Jayakumar as CEO of Bank of Baroda, and Rakesh Sharma of Lakshmi Vilas Bank as CEO of Canara Bank. In the same year, Ravi Venkatesan, former chairman of Microsoft Corp. India, was appointed chairman of Bank of Baroda.