As top private banks of India gear up for the largest churn in the top echelons of management witnessed in the past decade, executive search firms face an uphill task in finding the right candidates to fill these positions.
With the Reserve Bank of India (RBI) coming down heavily on banks that have been saddled with a significant quantum of bad loans and many existing bank chiefs closing in on retirement, many top private sector banks are or will be on the lookout for new leaders.
On October 4, ICICI Bank reported that its incumbent managing director and chief executive officer (MD & CEO) Chanda Kochhar had decided to quit the organisation. She was replaced by the bank’s chief operating officer Sandeep Bakhshi. Kochhar has been accused of impropriety—of being complicit in an arrangement that ensured investment in her husband Deepak Kochhar’s firm in lieu of bank loans to the Videocon group; subsequently, the loans turned bad.
Similarly, in September, Axis Bank appointed HDFC Life MD, Amitabh Chaudhry, as its new MD and CEO. Chaudhry will replace Shikha Sharma once she demits office in December this year. Though there has been no allegation of impropriety against Sharma personally, the RBI has come down heavily on banks that have been saddled with bad loans, and whose accounting procedures it has found deficient.
RBI has issues, similar to Axis Bank, with YES Bank too. Unhappy with its policies on reporting bad loans, RBI denied a full term to YES Bank chief Rana Kapoor (who is also a promoter and one of the co-founders of the bank) and asked him to vacate office by January 2019.
Even banks that have been relatively unscathed by the bad loans crisis till date, such as HDFC Bank and IndusInd Bank will have to start looking for new top executives shortly. The terms of Romesh Sobti, MD and CEO of IndusInd Bank, and Aditya Puri, MD and CEO of HDFC Bank, come to an end in March and October 2020, respectively. While it was widely anticipated that Paresh Sukthankar, deputy MD at HDFC Bank would take over from Puri once he retires, he stumped everyone by announcing his decision to leave the bank after serving it for more than two decades.
“In the next couple of years, tenures of a few CEOs are coming to an end. This will pose the highest requirement for CEO talent (in the financial sector) we have ever witnessed in the past in India,” said Puneet Pratap Singh, a partner-in-charge at global executive search firm Heidrick & Struggles.
RBI’s strategy to cut short tenures of bank chiefs as part of its larger plan to tackle non-performing assets (NPAs) and clean up bank balance sheets will add to the talent crunch, head hunters say, as the focus will shift towards finding candidates with a stellar reputation and a strong track record of creating sustained shareholder value.
Chaudhry’s appointment at Axis Bank indicates that recruiters are now looking outside the banking sector for potential candidates. Chaudhry is well regarded for leading HDFC Life well and taking the company public successfully in 2017. Similarly, though Bakhshi has been a part of the ICICI group for years, it has been mostly in the insurance side: first with the general insurance arm, ICICI Lombard, and then with ICICI Prudential.
“Given the fact that not many banks in India except Kotak Mahindra Bank, YES Bank, RBL Bank, IndusInd Bank, and few others have been able to create shareholder value, for finding the right talent, one needs to look not only within the banking system but also outside it,” Ankit Bansal, founder and CEO at search firm Sapphire Human Solutions, said.
But, whether this talent crisis will lead to a significant rise in the fixed salary of chief executives or not, is debatable.
Higher accountability generally demands higher quality of talent which obviously will result in better compensation,” said Bansal, who recruits for the banking, financial services and insurance (BFSI) industry. He projected a minimum 25% jump in CEO compensation, including ESOPs (employee stock ownership plans).
Argued Aditya Mishra, director and CEO of CIEL HR, who recruits employees for private banks: “In the wake of recent events in BFSI sector with allegations of wrongdoing, boards are not likely to make major changes in CEO compensation.”
As of today, there is no thumb rule or benchmark for the compensation of CEOs at private banks. It is typically linked to the size of the asset base, profitability and growth prospects. However, if an existing employee is promoted to the CEO’s role, s/he is already in a particular pay bracket and is unlikely to register a drastic growth in remuneration. The real adjustments in compensation will be driven by his/her performance over a period of time.
Case in point: When Kochhar replaced K.V. Kamath as the MD and CEO of ICICI Bank in 2009, her basic remuneration stood at ₹78 lakh, while Kamath had drawn ₹1.47 crore in the fiscal year 2008-09. Kochhar earned ₹94.5 lakh in the next financial year, much less than what Kamath drew as the MD and CEO of the bank.
For external candidates too, the salary package of the existing CEO is surely not a benchmark at which the new CEO will get hired. It depends on the candidate’s credentials, what s/he brings to the table as part of the previous job role and his/her ability to negotiate. Depending on ratification by the board, the salary of a new hire might be more, same, or even less.
“In the longer run, given the potential of the sector, CEO compensation will certainly go up and be way ahead of the inflation,” said Mishra.
As the banking sector prepares for a change of guard, there is a need for a stronger board with a heightened emphasis on accountability.
“Guidance in building a top quality banking franchise across the private and public sectors is the need of the hour,” said Singh, who works on top executive search mandates for both private and public sector banks at Heidrick & Struggles.