Forget NPAs. Lack Of Talent, Tech Disruption And Bad Governance Threaten PSU Banks
While NPAs are just the tip of the iceberg, the real crisis lies in a clear lack of leadership, talent, culture, strategy and capability in public sector banks.
Public sector banks are bleeding today - swept over by changes and stiff competition. They have to get their act together on ironing out critical problems, or the government stands to lose its cardinal lifeline to development. While non-performing assets (NPAs) are just the tip of the iceberg, the real crisis lies in a clear lack of leadership, talent, culture, strategy and capability in public sector banks.
Ravi Venkatesan, chairman of the Bank of Baroda, has identified three major challenges facing PSU banks, today:
1. Inability to attract talent: PSU banks are unable to hire the best talent in the market – thanks to an obsolete compensation and promotion policy. There is no great encouragement for meritocracy or for developing specialised talent. Consider this: “the chairperson of India’s largest and extraordinarily well run State Bank of India makes less than a tenth of her private sector counterparts.”
2. Technological disruption: Banking sector requires IT expertise so much more now as the world’s top banks are competing with IT giants to hire the best talents in physics, mathematics and science. Areas like big data, analytics and real-time monitoring have taken off in a big way. Besides, new fin-tech will soon render business model of many banks unviable.
3. Governance: Bank boards lack the authority to hire directors, who can bring the much-needed expertise or perspective, leading to bad governance. Boards do not appoint the managing director or the executive directors, nor do they have the authority to incentivise or manage performance or terminate management. In the absence of a clear authority, there is a risk of bank managing directors getting orders from more than one quarter like parliamentarians, RBI, the finance ministry and Bank Board Bureau.
Some of the solutions suggested by the author to bring about a transformation in public sector banks, and to rein in their rapidly plummeting market share are – a monumental upgrade of the talent pool as well as technology along with better compensation, room for enterprise and merit-based promotion policies.
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