Risk Management : Sycophancy and Opaque Promotion Policies Are Biggest Risk for PS Banks ( My views given below)
by
Rajesh Goyal 
A few days I saw some articles on Risk Management in ET and was reminded of the period when I had worked in Risk Management Division for a number of years in my career - A public sector bank. Therefore, I am well aware about various risks - credit, market, operational risks which are well defined in Basel documents and are always taught in almost all training centres of banks. On number of occasions when I was in service, I had thought of the risks from areas which are beyond Basel documents.
The risks from sycophancy and opaque promotion policies had hit my mind on such occasions. However, at that time I felt that these may be bank specific and not industry as a whole. After taking VRS when associated with ABS, I realised that it is a problem of the banking industry specially the Public Sector Banks and is not specific to one bank.
We receive numerous mails and comments which clearly indicates the frustration among bankers on account of above two areas. Therefore, I thought of highlighting it through this article. I think I should have taken up this issue earlier as this has already damaged our banking industry a lot. Other problems which I have taken up earlier (viz stoppage of sale of gold coins through banks, stoppage of third party products, mis-selling of insurance policies) are already being looked into by RBI. CMDs/EDs of banks have already been shown the mirror for their aggressiveness on sale of these products. I can not claim the full credit for action taken by RBI / MoF on these issues (although highlighted by us on many occasions in last 2 years period) as it has been mainly due to Cobrapost expose and precarious current account deficit of the country.
Let us now, after some self praise!, come back to today's topic of risks faced by PS banks from sycophancy and opaque promotion policies. Things on this front seems to have gone bad to worse in recent years. Like Uttarakhand CM, the top bosses CMD / EDs are not realizing the gravity of the situation. Uttarakhand government never felt anything wrong with massive encroachment on river beds by people in power, deforestation, unbridled hydro projects etc., till Shiva showed its face of " Destroyer ". With a single stroke, the state has suffered damages which will take years to recoup. Similarly, the CMDs / EDs of Public Sector banks are at present NOT realising their follies of sycophancy and opaque promotion policies. These two factors have been slowly damaging the banking sector to the extent that soon banks will become a volcano ready to erupt any time.
Recently, banks have been hit by reputational risks by Cobrapost sting operation. Banks have always been in a denial mode of such practices though of the record some of the bankers agreed. The worst part is that even after Cobrapost expose, the affected banks wasted no time by giving themselves clean chit through their internal enquiries.
It will not be wrong to say that present high level of NPAs is mainly due to sycophant and dishonest promoted officers who have reached the top of the ladder.
Although, at this stage, CMDs, MoF officials, RBI officials are in a denial mode as they are enjoying the cream, but they will realise soon when financial crisis over takes these banks. (RBI has started realising the flouting of KYC norms of banks ONLY after Cobrapost expose ! ). At the end of every quarter CMDs of different banks announce that things will improve from next quarter on NPA front, but it is going from BAD to WORSE with each passing quarter.
Our PM, FM and bank CMDs keep on blaming the global scenario (SBI Chiarman is in the habit of putting all blames on RBI Governor and non reduction of CRR / non payment of interest on CRR) for all the ills of NPAs. They have toadmit that US which faced the maximum burns of 2008 financial crisis has already recovered, and India which faced the minimum impact of such crisis is now facing the worst crisis. INR has already touched over Rs 61 per dollar and soon bank CMDs will blame this for bad debts of companies dependent on imports.
Thus, what is desired now as a first step is to bring transparency in promotion process in banks. There is need to disclose the marks given in Annual Performance Appraisals and then also disclose the marks given at the time of interviews. In case any one is given the marks below the minimum cut off in interview, the reasons for the same must be put on record. We all are well aware that during last decade or so, HR policies of most of the bank, specially Promotion Policies, have undergone changes and merit oriented schemes have been introduced. However, at the ground level, the execution of these policies is totally fraudulent. Top bosses, in the name of merit, have promoted those who have been sycophants or taken recourse to corrupt practices rather than the true growth of the bank they serve. In the name of merti, huge number of juniors have been promoted and seniors humiliated. All this has resulted in large scale rift among the officers community.
I am aware of one of the CMDs of PS Banks, who a few months back in an interview has openly advocated the 2020 scheme i.e. to give preference in promotions to people who will retire beyond 2020. This divided the officers vertically and seniors soon realised that they are in most probably not going to get promotions and juniors will be preferred. This actually happened as I was a witness when in one promotion process out of the top 40 senior most people who were eligible for promotion, only one was found to have been recommended for promotion. With this single promotion process, a large number of seniors were turned into hostile bankers and juniors who had lesser experience but held higher posts found it difficult to get work done from competent officers but rejected merely because of the being senior in age. In next two years, this bank has slipped from top position to much lower level, and as per ET report is likely to show higher percentage of NPAs in the forthcoming quarterly results.
All the above would not have been possible, had there been transparency in promotion process. In IAS cadre, the seniors are always respected and juniors can rarely dare to challenge his senior batch-mates. In Banks we do not have any such rules. I have seen in banks that people with totally clean image and qualified from IIM - Ahmedabad retiring below the ranks of GM, whereas people with corrupt image and having much lowerqualifications going to become CMD at the age of 52+ and remain CMD for over 7 to 8 years. With right connections, such people even go beyond the posts of CMD of banks.
In view of the above, I am of the strong view that at present the greatest risk PS Banks are facing is neither credit risk or market risk or operational risk, but risks which are emanating from the all round sycophancy prevalent among the top brass of the banking sector and the opaque promotion policies which deny the honest bankers the promotions at the right time.
This is not only my perception but the feedback we receive at our website. Therefore, MoF and RBI needs to look into this aspect and force the banks to be more transparent in promotion process or MoF be ready to face much bigger crisis like we have seen in Uttrakhand where thousands have perished and no one is ready to take blame.
I hope someone will view the present crisis from above angle too.
My Opinion
Clever Finance Minister and his sycophants Chairman and Managing Directors of banks (CMDs of public sector banks who are part of IBA )) are suggesting cost to Company concept for bank staff in line with what private companies in IT sector are using to tap talented person from Educational campus or to attract employees of other companies .
It may be noted that promoters of private companies think for the betterment of their company and while picking up freshers from educational Institutes they keep in mind only the utility and gain to company from a particular person. They target to earn fifty lac from a person by offering a package of ten lac.
Most of IT companies hire an engineer or an MBA to outsource him or her for a foreign company and in such cases if the foreign company pays ten lacs of rupees to Indian IT company like Infosys or TCS, the employer offers a package of hardly two or three lac to the employment seekers.
On the contrary top officials of public sector companies think only for personal gain sacrificing all interests of the bank or company they represent. While picking up freshers from educational institutes top officers of a bank consider the personal benefits, monetary gain for their family, relation with person who recommend for selecting a particular youth for employment etc and they totally neglect the future of the bank they represent.
Even an inefficient officer from other bank in scale I is selected for scale III post by PS ban employer if his name is recommended by some imp person or some offer of bribe comes from some corner. Top officials of bank for gaining a lac or two in recruitment and promotional process can violate all ethics and moral recruit ineligibles and promote ineligibles.
Same position is in the case of promotion in public sector banks. Top officials seldom keep in view the utility of officer they select for promotion. Rather one who is number one flatterer of big bosses, who is of same caste and community , who is recommended by some VIP officer, who is corrupt and who has earned huge illegal money in credit sanction and shared with the bosses is picked up for promotion neglecting serious, efficient , honest and devoted officers.In the same fashion ED and CMD s are selected by MOF and the same culture flows from top to bottom in all promotion processes and in all cases of recruitment.
This is why private banks are progressing by leaps and bounds , their profit is increasing month by month , their NPA is lowest in banking sector, their CASA is highest, they employ greater number of youth , they create more employment , their customer service is better , their deposit and credit growth is higher , their NIM is more and everything is better compared to their counterpart in public sector under same domestic condition and same global situation. RBI gives all help and infuse capital from time to time , still PS banks are showing sickness and their health is moving from bad to worse whereas private banks are growing without any help from GOI .
CMD of every bank, RBI officials and MOF use to say all the time that banks are healthy and growing and from next quarter position is likely to improve. Politicians use to set committee after committee, suggest several ways for improvement, change rules from time to time and so on but never cares to ensure honest execution of rules and policies.
Top to bottom corrupt officers are in power and they leave no stone unturned to loot the bank from both hands for their personal gain and to help those who are ready to offer costly and costly gifts. Flattery and bribery is given full weight in all cases right from employment to promotion , credit sanction, write off bad loan , supply of goods and service and what not.
As such the concept of cost to company suggested by IBA and MOF is nothing but a tool to postpone wage settlement for indefinite period. It is pity that union leaders are also unable to understand the malicious intention of IBA members and the hidden agenda of MOF and UPA government.
If ‘cost to company’ concept is so much effective and productive, why the government does not apply to other public sector companies like ONGC, NTPC, SAIL , BSNL. Airlines, Government schools and Government colleges, Ministries, Central Services, state government services etc which are directly under control of the government and which are also supposed to produce more and more and which are also supposed to earn profits in addition to serving common men and serve social agenda of the country.
It is well known to all that all central services are governed by a set of scales and there is no stagnation and in most of the cases there is time bound promotion and at least there is value to seniority of staff. Scale of pay has got stagnation of increment as it happens in banks. An officer for the post of Secretary comes from senior IAS officers and not from educational campuses.
It is only in bank that an officer is directly recruited in higher scale .If cost of company concept is made a success in bank , there will be total chaos in banking and no power can stop further deterioration in health of banks.Bank staff who used to serve the bank for decades will have to leave the bank in a year or two if the concept of COST to COMPANY is accepted by Bank unions in Xth Bipartite Settlement.
Bank staff will be kicked out in few months if they do not flatter to their bosses and do not become ready to do even personal and family work of the top officials .It may be noted that in IT sector or in private companies , average length of service of an employee is not more than ten years . Bank staff will similarly change bank from bank and loose the stability as also lose their health in ten years of service as happens with those who are employed in private companies of modern era.
I therefore of strong view that brainless and greedy politicians are determined to spoil banks in the same way as they did BSNL and Airlines and other PS undertakings.I hope union leaders will take seriously the dirty game plan of IBA officials and MOF
