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BW Businessworld

Who Will Take The Baton Next Year?

Hit by controversies and frauds, the scanner is on the Indian banks that withstood the 2008-09 crisis. Questions are now being raised on leadership and HR policies

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A fter working for over 15 years, a mid-senior level executive at a Mumbai-based state-run bank decided to join a new-age private lender. Reason? Better remuneration, growth opportunities and professionalism.

“I have worked for many years in a public-sector outfit. There are restrictions, limited exposure and low pay package. When I saw my peers in the private sector, I felt I was losing out. And once I got an offer, I decided to quit the government set up,” says the executive, who wishes to remain anonymous.

Such cases have been on the rise. The charm and glamour of private sector banks have lured in many professionals from all corners including business schools as well as other state-owned banks.

For most junior, middle and mid-senior-level executives of state-owned banks, the grass on the other side is greener. Many “able and performing” officers are opting for higher packages outside the public sector banking net. Professional growth does not come easy for most employees and the wait to get recognised is long. On average, it takes over 15 years of experience for an officer to become a general manager in a state-run bank.

Till recently, it seemed India’s private sector banks had injected the best practices in all spheres of operations besides, of course, the critical area of human resource. While the state-owned banks have been grappling with multiple problems such as rise in non-performing assets (loans that do not fetch returns), inadequate capital and low credit growth among others, examples of corporate governance, accountability and HR practices followed by their peers in the private sector have been cited at many fora.

But unfortunately, insiders say that the next crisis that could erupt in the Indian banking space will be in the human resource space. “You need to have strong and able leaders to ensure that all process are in place and that is lacking,” says a senior banker, who quit his job recently.
Ashvin Parekh, managing partner at consultancy firm APA Services says that appropriate training and grooming for next generation leaders is missing in Indian banks. Little wonder that the Indian banking system, which stood relatively unchallenged during the 2008-09 crisis, is starting to face the heat.

Inside Private Sector Banks
With several banks getting muddled in controversies, it seems that all’s not well at these institutions. Just last month, the Serious Fraud Investigation Office (SFIO) summoned Chanda Kochhar and Shikha Sharma — chiefs of ICICI Bank and Axis Bank, respectively — in connection with loans given to Mehul Choksi’s Gitanjali Group. These two banks were part of a bank consortium that extended loans to the Gitanjali Group. Besides SFIO, other enforcement agencies have also started investigations by questioning many of the top executives of these banks.

On the back of the recent bank scams, murmurs of discontent have started gaining force and questions on leadership and accountability are being raised. And caught in the eye of the storm are bank chiefs who have been occupying the corners offices for eons.  

In September 2014, the Reserve Bank of India (RBI) increased the age limit for private bank chiefs to 70 years. And since then, the exercise of succession planning in private banks, barring HDFC Bank, has not got due importance. While a chief can continue till the age of 70, the retirement age of deputies continues to be 58 or 60.

“Most of these institutions have a strong second line of command and stable leadership teams with decade plus experience of working together. They have been exposed to varied business cycles, sticking through thick and thin; this is the best position to be in for an industry to be more prepared and meticulous around the whole subject of succession planning. Yet, when it comes to the obvious choice of selecting a prince or princess to usurp the king or queen’s place, they tend to be on the defensive and find themselves unable to handle the subject as effectively as they should,” says Agamjeet Dang, senior director and practice head (Financial Services) at search firm Executive Access.

Industry insiders concur with Dang’s point. “Much of the talk on HR practices and succession planning is still on paper, more for investors and shareholders rather than having much value otherwise. We may be made to believe that ‘A’ and ‘B’ are in line to take over, but in reality someone else from within or outside may be brought in,” says a senior executive engaged with a leading private-sector bank.

Ageing Bank Chiefs 
ICICI Bank chief Chanda Kochhar, who has been  recently alleged of having vested interest in sanctioning loans of Rs 3,250 crore to Videocon Industries, is 56 years old.

Axis Banks managing director and CEO Sharma, who was recently re-appointed for another term by the bank, is 59 years old. Sharma has, however, decided to shorten her term to December instead of May 2021 after RBI asked the bank board to reconsider its decision to give her another extension.

A steady rise in the bank’s NPAs has fuelled speculations and doubts on the leadership. The gross NPAs rose to Rs 21,280 crore at the end of March 2017 compared to Rs 4,110 crore at the end of March 2015.

While the bank’s spokesperson refused to throw any light on the succession plan, last year, executive search firm Egon Zender had been appointed to find Sharma’s successor before she was re-appointed as the chief by the board.  

Soon the same issue of a successor will find prominence at HDFC Bank and IndusInd. Aditya Puri, MD of HDFC, and Romesh Sobti, MD and CEO of IndusInd, will complete their tenure in 2020, when both turn 70. Puri, the longest serving chief of any bank, has been at the helm since 1994.

“Succession planning is in place at all levels and there is no cause for worry but naturally, we are not going to announce it or share it at this point,” says HDFC Bank spokesperson.  

Is Succession Planning At All The Focus Of Private-Sector Banks?
According to bank executives, the exercise of succession planning is often undertaken in a rather casual manner without taking all stakeholders into account.

“How can you have a pro-active succession planning if the boss is going to be around for a longer period of time while other senior executives would retire before that. Most of the chiefs naturally think that they will be able to stick in there till they are 70,” says a senior banker.

That apart, naming an executive for the top job or even propping up a selected few can demotivate several others in the senior management and even shake the morale of others, leading to some sort of an exodus.

Analysts and employees agree on one thing. There is excessive hype over the issue of HR and HR practices, training and succession planning, but little work is being done on the ground. “You cannot have vanilla training for such important positions,” a banker adds.

Issues At State-Owned Banks
Government banks have long been under the scanner. They are battling on several fronts such as mounting NPA levels, decelerating profit margins, cash crunch, muted credit growth and talent crunch. And amid the mega scams that have come to light recently, nobody seems to be giving any serious thought to the HR crisis that is waiting to erupt.

Succession planning in these banks is an exercise that is perhaps completely missing. Selection of bank chiefs is based on demographics of general managers which include age, number of years of experience and their overall performance. It is only after this step that the names are sent to the vigilance enforcement for clearance.

As fool-proof as the procedure may seem, the real problem for the 21 state-owned banks in India is that in the next couple of years, they will lose about 7 per cent of the senior management, which is set to leave a void that may be difficult to fill if proper strategy is not put in place at the earliest. Simply put, these banks will have very few able officials who could take over the top slots. What is more worrying is the fact that young professionals have no interest in joining government banks for reasons such as low remuneration and multiple regulatory layers.

Exodus At State-Owned Banks
Recruitment in these banks had peaked between late 1970s and mid-1980s. The officials who had joined these lenders around that time are soon approaching their retirement age. If that isn’t bad enough , the stalling of recruitment in these banks between 2000 and 2005, has also led to a shortage of manpower.

C. H. Venkatachalam, general secretary, All India Bank Employees’ Association, says the HR issue has been “completely ignored” by the government and the managements. “Recruitment has thinned and work load has been increasing,” he adds.

“Banks need to immediately start a well-strategised recruitment process as these banks are already short-staffed, plus another 50,000 employees are set to retire by 2020,” says Ashwani Rana, vice president of the National Organisation of Bank Workers (NOBW), an affiliate of the Bharatiya Mazdoor Sangh.

Hiring The Best
The government in 2016 had set up the Bank Board Bureau (BBB) to inject professionalism in public sector banks. One of the main thrusts of the BBB, headed by former Comptroller Auditor General of India Vinod Rai, was to focus on the HR spectrum, including hiring the best talent, increasing the pay package and providing professionalism and growth opportunities.

Anjuly Chib Duggal, former secretary, Department of Financial Services under the finance ministry, and her team were trying to chalk out a strategy for employees stock ownership plan (ESOP), out of turn promotions and ways to increase the overall pay packages to retain talent. However, little has been achieved, and as a senior finance ministry official sums it, “There is no simple solution. This will take time. But we need to act before it becomes a crisis-like situation.”  

The evolving banking topograhy
While the focus of state-run banks has traditionally been on growing their books, many of them have realised over the years that given the pressure on capital and dud-loans, it can’t be business as usual. That there needs to be a shift to fee-based streams of income — it reduces reliance on capital which is increasingly quoting at a premium; the other headache being that given the state of the fisc, the Centre can’t continue to be the white knight and dole out capital. Their private peers have fine-tuned their business model and have stayed clear of the “all-things-to-all-comers approach”, and have targeted specific business lines within corporate, retail, transaction and investment banking. Let’s set aside the hue of capital, but given the nature of the evolving banking topography, it only underscores the importance of HR. New age-banking is not about giving out loans — that’s at the low end of the food chain.