Splitting Chairman and MD Post of PSBs a Dangerous Proposition: ASSOCHAM

Splitting chairman and managing director post of PSBs a dangerous proposition: ASSOCHAM

Bifurcation of Chairman and Managing Director (CMD) post may not augur well for the public sector banks (PSBs), which controls about 75 per cent of the banking business in the country, as it may lead to inefficiencies and bureaucratic hassles rather than improvement, reveals the ASSOCHAM latest paper.

Moreover, proposed roping in of private sector executives may turn out to be a regressive step as public sector banks has completely different culture and ownership as compared to their private sector counterparts.

“There are fears that one more layer even though non-executive position may lead to some kind of inefficiencies. Bifurcation could also lead to differences between managing director and chairman at times leading to delay in decision making and other impediments in the growth and expansion of the bank unlike private sector”, said Mr. D S Rawat, Secretary General ASSOCHAM while releasing the paper.

Concerns are there that large loan sanction which needs board approval if there is difference of opinion between chairman and CEO could get delayed. Delay in sanctioning loan would have adverse impact on the industry, said Mr. Rawat.

 

D S Rawat, Secretary General ASSOCHAM 

Banking system which is considered to be life line of the economy may get choked due to want of fund and subsequently lead to slowdown of the GDP growth.

This has been witnessed in the past and India Inc has been highlighting this issue from the various platforms.

Another practical difficulty, says the ASSOCHAM spokesman, could be if the two top board members are not in good terms than also the loan sanctioning process would take a back seat as the CEO would not clear any loan proposal. As a consequence of this, bank would suffer as main business of the bank is disbursal of loans from the deposits mobilised.

Since the government is considering three-year fix term for both Chairman and CEO, this is one of reasonable concern areas. On the other hand, this scenario may not exist if one person is the chairman and managing director.

It is to be noted that from December 2014 onward, the government decided to split the post of Chairman and Managing Director. It has already appointed Managing Director in four public sector banks namely Indian Overseas Bank, Oriental Bank of Commerce, United Bank of India and Vijaya Bank.

Besides, it has invited application from eligible candidates including from private sector for the post of Managing Director and CEO in the five large state-owned banks viz Punjab National Bank, Bank of Baroda, Canara Bank, Bank of India and IDBI Bank.

Since the first advertisement could not elicit desired response, the Finance Ministry had to relax tough eligibility criteria.

So, it is in the interest of public sector banks and economy as a whole to continue with the old structure of the organogram in such institutions of repute for their exponential growth.

Src: ASSOCHAM

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