Government's decision to scrap the selection of eight persons for the post of chairman and managing director (CMD) will mean another three-month delay in new appointments

The government’s decision to scrap the panel of  nine probable names for the post of chairman and managing director (CMD) of public sector banks will mean that these banks will remain headless at least until the end of January, say senior bankers. The process of calling for fresh applications, interviewing and selecting candidates, followed by the central vigilance clearance takes at least three months if not more.

Does this mean that the mountain of bad loans of public sector banks (PSBs) are not really a concern for Modi Sarkar? Well, the callousness of the government’s actions certainly indicate that.  While the government has all banks engaged in rolling out the hastily crafted Jan Dhan Yojana programme for opening new bank accounts, it has been dragging its feet on the important issue of appointments.

The shoddiest action has been in the case of Punjab National Bank, whose chairman Mr K R Kamat, completed his 5-year term yesterday, on 27th October. Mr Kamath, who has also headed the Indian Banks Association, has another 13 months to superannuation. It was widely expected that he would be granted a short extension, in view of the fact that PNB would have become the third large bank to turn headless. However, that was not to be. Mr Kamath went home yesterday without so much as a farewell and unsure what happens next. At the end of the day, the Finance Ministry issued a release scrapping the panel of nine and saying that “eight posts of CMDs and fourteen posts of EDs would require to be filled-up de novo”.

PNB received a letter from the finance ministry only this morning asking the three Executive Directors to hold charge until a new chairman is appointed.  

But that is not the end to the uncertainty and turmoil at banks. It is reliably learnt that the government plans to announce the split in the post of chairman and managing director sometime next month. There is also talk that the Prime Minister will address PSBs chiefs next month. But if he does, then eight of the 20 top PSBs will  have no CMD attending the meeting and 14 Executive Directors will also be missing.

Interestingly, of the six probable names shortlisted for CMD posts earlier, only one is likely to be out of the race because of vigilance related issues. The rest would be eligible for selection again. These include the following Executive Directors – R K Goel of Central Bank, B P Sharma and A K Shrivastava of Bank of India, S K Kalra of Andhra Bank, M K Jain of Punjab and Sindh Bank, and B B Joshi of Bank of India. Given that the Bharatiya Janata Party (BJP) led government came to power nearly five months ago, should one assume that none of the six met with the approval of the new dispensation at the finance ministry?

Not really, says sources, but the picture that emerges is even more worrying. Things moved at a slow crawl in the otherwise fast-paced Modi government, because of Finance Minister (FM) Arun Jaitley’s absence due to bariatric surgery. Jaitley is also holding two other heavyweight ministries.

So much so that the re-shuffle of bureaucrats at the finance ministry itself was delayed almost until Diwali and is still not complete. Splitting the post of chairman and managing director is next on the agenda and the new appointments will have to wait until that is done.

Meanwhile, although the government shows concern about corruption in banks, there is no indication as to whether the split in the CMD’s post will be accompanied by more accountability and responsibility on the part of the Managing Directors. Moneylife has repeatedly pointed out the deliberate loophole in rules, that allows CMDs of banks, who are responsible for dubious lending decisions to escape responsibility without stringent action. We had pointed out how Archana Bhargava of United Bank of India was allowed to step down on health grounds in February this year, despite a damning investigation against her by the Reserve Bank of India (RBI).

This happened even before the Central Bureau of Investigation (CBI) caught Syndicate Bank chairman S K Jain in a bribery case. If corruption is really a concern, then accountability and personal liability being attached to the heads of banks is as important as selecting the right person for the job. As things stand, the government’s move to split the post of CMD has only unleashed high-powered lobbying for the non-executive chairman’s post. Those who aspire for these jobs include retired bankers, bureaucrats and people who are close to the ruling government.  

At a time when the All India Bank Depositors Association estimates willful defaults at over Rs70,000 crore and gross non-performing assets (NPAs) and bad loans of public sector banks stood at Rs 1.64 lakh crore at the end of March 2013, one gets more than jerky, sporadic actions from a government that promised change and good governance.