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Risk Management :  Sycophancy and Opaque Promotion Policies Are Biggest Risk for PS Banks




Rajesh Goyal 


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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.


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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 to admit 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 lower qualifications 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.


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