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Source: The post is based on the article “A matter of tenure and retirement of PSB chiefs” published in Business Standard on 16th January 2023.
Syllabus: GS 2 – Government Policies & Interventions for Development
Relevance: benefits of raising the retirement age of bank’s chiefs.
News: The Ministry of Finance has issued the extension of the CEO of Bank of Baroda Sanjiv Chadha. He was about to retire this month. The article discusses the need for the increased tenure of the bank’s head.
What is the notification issued by the Finance Ministry for the top-level appointment at nationalised banks?
A finance ministry notification in November 2022 stated that the top-level appointment at nationalised banks could initially be for up to five years and extended by another five years.
Earlier, the norm was three years or till the age of 60, whichever was earlier.
Why is there a need to increase the retirement age of a bank’s head?
A longer tenure is essential because if the person is not from the same bank, as is often the case, it takes time to get adopted into the culture as every bank is different.
Further, it is also not easy for an executive from a small bank to run a large bank.
Many banks have young executive directors (EDs). Therefore, the extension of the tenure will ensure they are around till they are 60 or close to 60.
Moreover, lower retirement age makes the CEOs incapable of looking into balance sheets and cleaning them up because they want to leave the organisation happily and positively.
Therefore, increasing the retirement age would benefit the performance of CEOs and help banks clear balance sheets.
Further, it will also ensure uniformity in the tenure of whole-time directors of the all-India financial institutions such as Small Industries Development Bank of India (Sidbi), National Bank for Agriculture and Rural Development (Nabard), etc.
What can be the way ahead?
First, there is a need to frame the qualifying criteria for top posts in all-India financial institutions to encourage young and deserving candidates.
Second, there is also a need for a comprehensive promotion policy for the entire financial sector, including banks, to attract talent.
Third, the whole-time directors’ tenure at SBI is capped at five years, irrespective of the age. However, the SBI chairman can remain at the position even after 60, even though the tenure is for three years.
Therefore, the tenure of whole-time directors of nationalised banks should be extended to 10 years. They should be allowed to be in the position even beyond 60, like SBI and like the tenure of a private bank’s CEO which is at 70.
Fourth, the new norm should also be extended for the top posts to SBI through an amendment to the State Bank of India Act.