Reserve Bank of India Governor Raghuram Rajan’s comments on the pay structure in public sector banks at a recent banking conference are spot on and timely too. Rajan argued for better pay packets for top public sector bankers as part of a number of reforms needed in the banking sector. Rajan’s observation — that PSBs pay too much at the bottom and too little at the top — is borne out by the numbers. At the top, the gulf in pay between private sector bank chiefs and their public sector counterparts is yawning — the heads of the top three banks in the private sector draw around ₹20 crore between them per annum, which is twice what all the 26 PSB chiefs put together make. There is clearly more than just an anomaly here and it is not about the concept of equal pay for equal work. Compensation packages for the top brass must be commensurate with the experience and expertise they bring, and the kind of role and responsibilities they undertake. It must also be appreciated that banks are commercial entities and this means the top bankers have to take risks — with no guaranteed success —and frequently run the risk of failure. The idea of reward for risk-taking is alien to bureaucrats who by instinct and training are risk averse.
The only reason top public sector bankers have hitherto not been given their due is that their pay is linked to civil service pay-scales. Maintaining the suzerainty of mandarins over professional bankers (ostensibly in deference to the idea of government control and ownership) cannot be the guiding principle of setting executive compensation levels in the public sector, particularly in banking, where private banks enjoy a level playing field in the marketplace. It is time to delink them and make compensation at the top more in tune with current realities. Otherwise, PSBs will simply not be able to attract top-notch talent — or even retain existing talent. . Peers in the private sector not only have have faster growth and better pay prospects, but also do not have the spectre of a CBI/CVC/CAG audit/enquiry hovering over them for every decision. It’s clearly time for intervention and the Bank Board Bureau, entrusted with improving governance in PSBs, would do well to go into this aspect and revise compensation structures at the top and middle management levels. At the same time, Rajan’s point about bottom tier staff in PSBs being overpaid is equally valid. The Centre and bank managements need to seriously focus on improving the productivity of such staff, and move towards a more performance-linked compensation structure at all levels.
If the Centre is serious about banking reforms and improving efficiency, it must step on the accelerator on the easier administrative measures which are low-hanging fruit. Rajan may have been jesting when he said that he too felt underpaid — but he has done a great service to public sector bankers by highlighting a genuine concern.