Leadership crisis in public sector banks

Reserve Bank of India Deputy Governor SS Mundra recently highlighted the leadership vacuum in the banking industry. This brings to mind a statement attributed to Louis XV of France during the thick of the French Revolution: “Après moi le déluge” (after me, the deluge). Indeed, some corporate CEOs too could be accused of harbouring an attitude of “I don’t care what happens to the organisation after I’m gone, it may be all chaos.” It’s a worrying scenario.

Practically, all the current CEOs of public sector banks will retire in the next two years. All the executive directors too will retire in the next three years. The number of general managers and deputy general managers leaving the industry during the same period is very high. As not many senior executives with adequate experience and exposure are available to fill these slots, the absence of any serious efforts to put in place a succession plan is noticeable.

Each Every time a promotions exercise is carried out in banks, plenty of data concerning candidates, their residual service and so on is examined.

However, it’s obvious that no follow-up steps are taken to either groom the juniors to shoulder higher responsibilities by exposing them to various segments of business and administration, or to bring in new blood from the market through lateral recruitment. The managements aren’t entirely to blame as the unions never really allow much freedom to them in recruitment, placement, transfer or promotion policies.

It is no exaggeration to say that some seniors not only believe in the French king’s philosophy, but worse, they do not pass on their knowledge and skills to juniors to enable them confidently handle responsibilities entrusted to them. A new entrant’s first few years in an organisation are crucial. Using this period for their grooming would prepare them to face on-the-ground situations. Apart from academic qualifications or structured classroom sessions, it is seniors who have to give on-the-job training with appropriate hands-on inputs. It can’t be a one-shot exercise; it has to be practised throughout one’s career, at all levels and verticals, to tone up knowledge and skills.

The practice of preparing new recruits through a well-planned and rigorous training schedule in vogue till the 1990s has not been given importance subsequently, thanks to various exigencies. Academic knowledge and ability to score in the recruitment tests were much relied upon.

This deficiency is glaring as many of the current crop of branch-level staff or executives are unaware of the policies of the Government or the RBI that impact a customer’s dealings with a bank, and are unable to provide any professional advice. It is possible that even some of the seniors at the branches are themselves ill-equipped to groom their juniors.

The gap of a few years in recruitment during the first decade of this century is cited as the reason for the jump in the average age of personnel and the dearth of required persons. But once freedom was granted to the banks by the RBI in branch expansion, they went for an unplanned but vigorous competition in branch expansion. Noticing the mushrooming of branches only in urban and metro centres and recognising the socio-economic importance of financial inclusion, the Government and the RBI directed banks to increase their presence in rural, and unbanked or under banked areas.

The absence of commensurate recruitment to keep pace with branch expansion caused enormous mismatch in requirements and resources. As a result, recruits fresh from college with hardly any exposure or experience, and without going through the grind are made to discharge duties they are not familiar with. Many of them, with half-baked knowledge or skills, find themselves unable to cope with demanding and knowledgeable customers or the markets. Customers seeking information find the youngsters unfamiliar with their bank’s policies, procedures and products.

There are many instances of fresh recruits are heading the branches. In large branches manned by senior executives there is no dependable second line either to provide support or take over in case of leave or other exigencies, including the retirement of an incumbent. Perforce, juniors are entrusted with higher responsibilities clearly beyond their competence. We can attribute the spurt in the number of frauds both by insiders and outsiders partly to this factor.

To avoid a leadership vacuum and as an interim arrangement, some radical and unprecedented steps are needed. There are competent business leaders with appropriate knowledge, skills and experience in financial institutions or those guiding the finance functions in corporates, looking for opportunities to grow, which may be limited in their own organisations. That the RBI thought it fit to give bank licences to several non-banking finance companies and microfinance institutions is a pointer. Even appointing a few outsiders as CEOs of PSBs is an example.

But the compensation packages in the private sector are way away from those offered in banks. These executives can be attracted with good packages and a clear career path to rise.

With intensive classroom coaching in banking for a few weeks, they can be groomed in-house by banks’ top executives. A couple of banks have reportedly attempted equipping their top-level staff with better skills by engaging retired executives to train them. Another option is to extend the services of senior executives and allow the next in line to work as understudies to them till they are ready to take over.

One of the reasons for the failure of some senior executives, who find themselves to be square pegs in round holes, is the tendency on the part of their bosses to perpetuate the existing persons in key positions for their comfort.

It has a two-way impact. It creates indispensability, with no plans for readying substitutes to step into their shoes. With no opportunities to gain knowledge and experience in various fields and become a well-rounded, competent executive, the individual in question also suffers. They need knowledge and skills of a different nature to occupy higher positions.

It should be made mandatory for all banks to have a clear succession plan in place for all senior positions and specialist assignments. The RBI has been following a policy of granting banks more autonomy and reorienting the approach to oversight of banks with the aid of technology and remote monitoring of various aspects of bank functioning. To ensure that good human resources (HR) practices prevail, the RBI inspection teams visiting the banks should assess the HR policies and practices and advise the banks suitably.

The writer is a former MD of State Bank of Mysore