Not just training: What RBI, public banks need to do to curb bribery, employee attrition

On Tuesday, two seemingly unrelated developments made news in the banking sector.In the first development former Syndicate bank chairman and managing director, SK Jain, who was arrested by the Central Bureau of Investigation (CBI) on 2 August on charges of bribery for accepting Rs 50 lakh from middlemen in exchange for extending credit facilities to Bhushan Steel and Prakash Industries, was sacked by the board of the bank he once headed.

In the second one, a panel set up by the Reserve Bank of India (RBI) submitted its report recommending ways to improve the quality of human resources in state-run banks.

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At first glance, Jain’s sacking, which came after nearly two months of being in CBI custody after he was caught red-handed, doesn’t have any direct connection to the RBI panel report.

But, a closer look at the factors behind both these developments will show an interesting correlation.

Jain’s arrest and subsequent sacking from the job is just another instance of a public sector banker getting caught for graft. He isn’t the first chairman of a PSU bank to be arrested in a bribery case or for violation of norms, and he isn’t likely to be the last.

There have been several instances in the past too, where senior executives at public sector banks have been arrested on charges of accepting bribes from companies in connivance with middlemen.

The tale of tainted officers in sarkari banks goes back to 1991, when KM Margabandhu, CMD of Uco Bank, was arrested in connection with the Harshad Mehta scam. He too was later sacked. In another case, around 10 years back, a former chairman of a Maharashtra-based PSU bank was booked.

That apart, there were several top executives against whom bribery cases were registered by the CBI or Central Vigilance Commission (CVC).

To name a few, State Bank of India deputy managing director (DMD) Shyamal Acharya was charged by CBI in November 2013 with alleged graft in disbursing loans of above Rs 100 crore; in November, 2010, RR Nair, former CEO of LIC Housing Finance, was slapped with multiple charges, including overlooking regulations while sanctioning loans, changing rules for appointments and extending loans to defaulters.

In November 2010 the CVC alleged violations of norms by former Corporation Bank CMD, Ramnath Pradeep.

The common thread in all these cases is the role of middlemen. Bankers accepted money for wrongdoing through middlemen. In all these cases bankers either offered loans to corporations violating prudential norms or facilitated illegal transactions involving huge amounts.

At the same time, there have hardly been any major cases where private or foreign bankers were involved in graft cases in India.

The question is are public sector bankers are the only ones to fall prey to graft, or are the private sector bankers are smart enough to cover their tracks? It is possible that private banks prefer to keep quiet about wrongdoing in order to protect their reputations.

Beyond the element of criminality and financial fraud visible in all these cases, one major reason why sarkari bankers are prone to indulging in bribery is their poor compensation package compared to those in private banks.

This is where the RBI report on capacity building and improving the quality of human resources comes in.

The report, which discusses ways to improve the quality of human resources through skill development and hiring younger talent, has not paid attention to the one critical factor - the widening compensation gap between public and private sector pay.

Some of the points highlighted in the list of recommendations include processes and steps for skill development, training strategy, need for expert trainers to help build capacities, coaching and mentoring, including the mentoring of top managers, and creating the post of chief learning officer in banks.

Focusing on these areas will certainly help improve the efficiency of the workforce in state-run banks, but without resolving the pay differences, none of the above will work to the desired level.

Salaries in public sector banks are decided through mutual discussions between the Indian Banks Association, the industry body of banks, and the bank unions once every five years. In contrast, salaries of top executives at private sector banks are decided by individual bank boards and shareholders with the approval of the Reserve Bank of India.

The difference in salaries between officials in similar ranks in state-run banks and private banks is huge. In 2012-13, the chairman of the State Bank of India was given an annual compensation of Rs 23 lakh. As a point of comparison, the annual compensation of Chanda Kochhar, managing director and chief executive officer of ICICI Bank, is over Rs 5 crore. Tthe SBI chairman’s post does come with a lots of perks but the job is actually more challenging.

Such differences will logically be present at all levels of banks and partially explains the rising attrition rates in state-run banks and officers seeking ‘alternative channels’ to increase their income. Officials at our public sector banks are no less competent than their counterparts in private or foreign banks. The key differences relate to pay and accountability.

Compensation packages to bank officials should not be offered on a uniform basis but should be offered in relation to the size of the bank and performance, which isn’t the case presently. And till this anomaly is rectified, the system will produce more SK Jains.