Indian state banks are headless, Just when they need leaders

7 June 2018: India’s government-owned banks are becoming frequently rudderless, just when they most need a firm hand at the top. Four of the country’s 21 state banks have yet to designate replacements for perished chief executive officers, and another has seen its CEO stripped of her powers due to deception charges.
 
Over the coming months, nine more of the lenders are due to lose their top executives, at a time when spiraling bad loans and an intensified crackdown on financial sector-corruption make the jobs less appealing than ever. 
“Fascinating top talent to lead many of these state-run banks has become tough as an environment of fear is created,” said Hemant Kanoria, chairman of SREI Infrastructure Finance Ltd., a non-bank company that lends to infrastructure projects in India. 
While it isn’t the first time that top spots are empty at Indian banks, these vacancies come at an articulation point in the nation’s $210 billion bad-loan cleanups, a crucial step to boost investment in Asia’s No. 3 economy. Lack of leadership leaves these lenders striving to form strategies and meet government conditions to win more funds under a record public bailout. 
 
Andhra Bank, Dena Bank, and Punjab & Sind Bank have had no CEOs since the start of this year, while the head of IDBI BankNSE 0.61 % Ltd. -- which has the highest bad-loan ratio among Indian lenders -- was named as deputy governor of the central bank on Monday. Allahabad BankNSE -1.51 % is effectively headless as it stripped CEO Usha Ananthasubramanian of her leadership after she was formally charged last month over alleged involvement in a $2 billion fraud at a previous employer, Punjab National Bank. 
Bank of Baroda, Canara Bank, UCO BankNSE 1.37 %, Indian Bank, United Bank of India and Corporation BankNSE 1.77 % are among lenders where the incumbent’s tenure will end by March. 
Poor Pay, More Scrutiny 
Another challenge in finding replacements is the low salaries on offer at state banks when linked with their private sector peers. Ananthasubramanian earned about 3 million rupees ($45,000) at PNB in the year ended March 2017, about 5 percent of the 60 million rupees earned by Chanda Kochhar, the CEO of the country’s second-largest private lender ICICI BankNSE 1.81 % Ltd. While this massive discrepancy was always the case, Kanoria said intensified of state bankers has eroded the appeal of the jobs. 
 
Current and former top executives at least four banks are being examined by federal authorities for accusations of indecency. 
Moreover, the government has said state banks will have to show that they’re cleaning up their act if they want to win fresh capital injections. These reforms include selling non-core assets and setting up separate units to manage stressed assets, steps that would need top executives to sign off on them. 
About 30 top-level vacancies exist at state banks, including executive directors, the Press Trust of India reported last week citing people it didn’t identify. Meanwhile, several government-controlled banks reported losses last quarter as bad loans surged. The Finance Ministry’s spokesman didn’t reply to a phone call seeking comment. 
While the government used to quickly designate CEOs of state banks, triggering allegations of cronyism, in 2016 it created a Bank Board Bureau to independently handle top recruitment. 
 
When naming the new head of the bureau in April, the government pledged its commitment “not to interfere” in senior-level appointments. CEOs are typically chosen from among their peers for a term of three years. 
 
“These banks, lacking CEOs, don’t have sufficient capital or an appetite to lend,” said Siddharth Purohit, a Mumbai-based analyst at SMC Global Securities Ltd. “To attract the right kind of talent to these situations may be difficult in the prevailing environment.”