Industry welcomes move to let PSU bank heads have maximum tenure of 10 years

Aditya Puri got 25 years to build HDFC Bank; Uday Kotak has been heading Kotak Mahindra Bank since its inception, which is almost 20 years. But the average tenure of a public sector undertaking (PSU) bank CEO is usually three years at best and often shorter, and that is set to change. The government on November 18 announced that PSU bank heads may be appointed for 5 years extendable by another 5 years, which means a 10-year PSU bank MD term is possible.

In an interview with CNBC-TV18, SS Mundra, former CMD of Bank of Baroda (BoB) and then former Deputy Governor of Reserve Bank of India (RBI), and Sunil Mehta, Chief Executive of Indian Banks' Association (IBA) discussed at length whether this can materially change governance at PSU banks.

First up, Mundra said the profile of senior management in public sector banks has changed in the last few years. “It was very much needed because of the circumstances and is a very good move”

According to him, most of the banks have introduced accelerated promotion systems and now there is more certainty within PSU banks. “What has changed in the last few years is that most of the banks have introduced the accelerated promotion system, banks have started doing the lateral recruitment, particularly in the area of specialisation and as a result, today, we have a situation where we have people in ED group who are in the age of 45 to 50,” said Mundra.

Meanwhile, Mehta believes that stability of tenure will aid in executing a long-term strategic goal. However, anomalies have been corrected with new conditions.

“Stability of tenure will always help a CEO to execute a long-term strategic goal because with the change of incumbency the priorities keep changing,” he said.