Indian banking sectors have a very uncooperative incentive structure with a wide gap between the public sector lenders and private sectors. This gap can only be described as unfair and unhealthy.
According to the annual report provided by the government-owned State Bank of India, the country’s largest lender, it paid its chief, Rajnish Kumar a little over Rs 30 lakhs in FY20. Its rival, HDFC Bank, which is a private sector bank reportedly paid more than Rs. 15 crores to its chief Aditya Puri. The reported amount excluded stock options and other perks.
The Reserve Bank of India’s report on banking trends stated that, on an aggregate basis, the compensation of the top executive looks to be inversely proportional to the size of the bank that is managed. As of 2019, the median compensation that was provided to the chief executives in the public sector banks was less than ₹50 lakhs although the average asset size had exceeded over ₹5 trillion. In contrast to this, the median compensation that private-sector lenders paid to their top boss was more than ₹3.5 crore for managing an average asset size of less than ₹3 trillion.
This kind of disparity between the public and private sectors has been a long-running debate. It has returned recently. Whether the State Bank of India would bring into effect a salary cut for its leadership team just like the private sector banks, considering the pandemic situation is an important question. Some believe that the ability of the Public sector to give to their executives’ invaluable perks such as vehicle use, housing, and dedicated help may help to reduce the gap between them and their private sector counterparts to some extent. Apart from these, there is also the matter of job security and retirement benefits that private sector executives do not get.
This kind of an arrangement made by each has been under the microscope for a long time and has been a topic of debate for a long time. Many arguments have been placed over time regarding this issue. Banking sector experts have also recommended overhauling compensation not just for top executives but also for the overall personnel in public sector lenders.