Raghuram Rajan in the beginning of August said in an interview to Zee Media, that public sector banks needed an overhaul in the way they were governed, especially in the post of the chairman-managing director (CMD). In the wake of the arrest of the Syndicate Bank chairman, he said though one need not worry about all public sector banks, but the basic framework in which the CMD works needs to be changed.
The Times of India reported today that the government split the role of the chairman and managing director of the PSU banks. It says that the chairman would be a reputed person from the industry while the managing director-CEO will run the daily functioning of the bank. The MD would have a fixed term of three years which could be extended by two more years. Rajan has said in the Zee interview that the MD would need a longer tenure to implement his vision.
There could be new norms coming in for the independent directors on the board of a bank. They could be economists, journalists, management professionals or other such experts.
Rajan had said that the PSU banks would have to focus on hiring on good mid level executives for the bank for which they would have to hike salaries of the executives. Even if the salary did not match the private banks, they would have to go up from current levels. He agreed that though PSU banks might earn lower margins than their private counterparts keeping national interest in mind for certain projects, the viability and profitability of the project would have to be considered before dolling out funds to them.