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November 11, 2013

Appointment of Bank's CMD

Typically, for every two positions, at least three people need to be interviewed.As there have not been too many executive directors who could meet both conditions, the government relaxes one of them. It stuck to the two-year residual service condition but decided to overlook the requirement for one-year experience.
This fast-track promotion policy has not gone down well with many. It’s not because relatively younger executives are set to become chiefs of banks but for the fact that the government is following different rules for different banks at different times and there is no uniformity in its approach. For instance, while selecting the SBI chief, the government dropped the two-year residual service clause. Four managing directors were called for the interview and only one of them had more than two years of service left. The government waived this clause and, at the same time, introduced a new one—irrespective of the years of service left, the minimum tenure of a State Bank chairman is now three years.

In fact, two members of Parliament have written to the government on this. One of them belongs to the Bharatiya Janata Party and another, the Shiv Sena. I don’t know what these two gentlemen have to do with the appointment of chiefs in public sector banks but their letters make one point clear that such appointments are sensitive, for politicians as well as Indian corporations who borrow from banks. At least two executive directors in the past had told that they had got calls from people willing to help them ahead of their interviews. Typically, such calls are made by chartered accountants who claim to be connected with relevant people. They do not ask for anything in return while offering their service. Both the executive directors claimed to have not entertained such calls as they were not willing the pay the price to the brokers for their service.

Typically, one is required to return the favour by giving loans to corporate houses and individuals who would later approach the chairman through these brokers. As a result of this, a bank may end up piling up bad assets. Such brokers also put pressure on a chairman for restructuring bad loans. Allegations made by these two executive directors could not be verified but the fact remains that the government looks vulnerable when it comes to the appointment of chiefs of public sector banks as the rules are often broken and made with the apparent intention to accommodate certain individuals. It is extremely difficult to prove this but one always gets the uneasy feeling that things are not done transparently. To defend its credibility, the central bank should disassociate itself from the process.

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