The farce of bank CMD selections

Q. Which of these statements is true?

• If you are an executive director of a public sector bank, you can qualify to head a PSB as its chairman-cum-managing director, provided you have put in at least two years of service as an ED and have a residual service of two years.
• If you are an ED of a PSB, you can qualify to head a PSB as its CMD, provided you have put in at least six months of service as an ED and have a residual service of two years.
• If you are an ED of a PSB, you can qualify to head a PSB as its CMD, even if you have a residual service of less than two years.

A: All of these statements are true.

Q. Which of these statements is true?

• If you want to become the CMD of a big PSB, you must become the chairman of a small bank first.
• If you want to become the CMD of a big bank, you don't need to migrate from one small bank to a big bank. You can directly be made the chairman of a big bank.
• You can never become the CMD of the same bank where you're an ED.
• You can indeed become the chairman of the same bank after serving as its ED.

A: Once again, all these statements are true.

The questions, by the way, are based on the different criterion used from time to time for the selection of CMDs of public sector banks.

With the eligibility criterion changing so frequently, and arbitrarily, senior bankers at India's 19 nationalised banks that account for half the industry's asset base just can't seem to figure out what's required for them to make the grade.

Technically, no one can blame the government for this. After all, there is a high-profile Appointments Board to oversee the procedures. The Board consists of the governor of the Reserve Bank of India, one deputy governor, secretary of economic affairs, and two external members.

At present, these two members are Dipankar Basu, former chairman of State Bank of India, and Pradip Khandwalla, former director of Indian Institute of Management, Ahmedabad.

Then, there is a committee of the Board which interviews senior general managers of the industry to choose the best talent suitable to fill in the slots for EDs. The same committee also interviews the EDs of PSBs to fill in positions of chairmen of big and small banks.

Once the committee is through with the process of interviewing the candidates, the Appointments Board finalises the names of the prospective EDs and chairmen. At the next stage, the names go to the office of the finance minister and, finally, they get the nod of the Prime Minister's Office.

Of course, the clearance from the Central Vigilance Commission for any appointment and even re-appointment is mandatory. This means, even when one bank's chairman is made the CMD of another bank, the CVC clearance is still required.

How does the committee go about  picking the right candidates?

Normally, between 80 and 100 general managers are called for the ED interviews that take place at the RBI's Delhi office. The average time given to a candidate is not more than 10 minutes but such is the rush of candidates, the interviews spill over to the next day.

The questions asked to these candidates can be as predictable as "Why did you decide to become a banker?" or as profound as "Should the banks disclose their exposures to derivatives deals in their balance sheets?"

General managers of big PSBs who are posted at their overseas branches normally use this opportunity for a mid-year break to visit their relatives and to pick up some homemade pickles.

How are the CMDs selected? Interviews were not part of the chairman's selection process till recently. Now, these interviews (where EDs take part) are just as long as those of general managers for the post of EDs.

One important input for the chairman's selection is the confidential report of the chairman of a bank on his deputy -- the ED. In this report, known as performance appraisal, normally all EDs get 90 out of 100.

However, there have been cases -- rare though -- where unhappy chairmen who do not get along with their EDs have given them lower marks. But the RBI can always step in and "correct" this aberration.

So, for all practical purposes there is no framework for selection of the top executives of nationalised banks. As a result, political parties step in to influence the decisions.

"You really cannot blame the bankers. This is a complete rule of the jungle and the bankers often approach a political leader for a favour as there is no choice. Had there been a uniform formula for selection, no one would have dared to seek help from the political bosses," says an HRD professional in the banking industry.

In the private sector, either the CMD is groomed within the organisation and exposed to  various facets of banking before reaching the top, or headhunters look for the right candidates once the incumbent CMD calls it a day.

A series of interviews and group discussions spread over weeks or even months are the necessary ingredients of the selection process. And once the CMD takes over, the board continuously evaluates performance.

In stark contrast, the performance of executives of nationalised banks is under the glare of the board till the level of EDs, and once an ED becomes a chairman, people stop looking at his report card.

Technically, the RBI is expected to do a performance analysis of the CMDs of nationalised banks periodically and hand it over to the banking division of the finance ministry.

However, for all practical purposes, there is no performance analysis. A CMD is neither judged on his leadership qualities nor is he linked to his bank's performance.

So, a CMD is never sacked for non-performance. The regulator does not have the power to sack a CMD but the owner can certainly throw out a bank chief with the Cabinet approval if he is not doing his job properly.

The toughest stand the government has traditionally taken on a bank chairman is to ask him to proceed on leave on medical grounds. However, this is done only when there are corruption charges against a CMD -- and not non-performance.

Finance Minister P Chidambaram is keen on offering autonomy to the public sector banks. However, unless the appointment process of CMDs is handled transparently, autonomy per se can be reduced to a joke. 

The government can reposition the Appointments Board by delinking it from the banking division of the finance ministry and bringing in more experts under its fold.

The interview process can be made elaborate by incorporating group discussions and presentations by the candidates instead of the present 10-minute affair. 

The PSBs are profitable and they can always allocate a part of their net profit to put in place a transparent system that can identify the right leaders.

Alternately, the government can buy back shares from the public and get back its 100 per cent ownership of banks. In that case, no body will complain how the CMDs are chosen.