According to RBI Governor, Duvvuri Subba Rao, State Bank of India chairman Om Prakash Bhatt and his colleagues in various levels at public sector banks deserve higher pay to compete effectively against the nimble and well-rewarding private sector ones such as ICICI Bank and HDFC Bank.
“If public sector banks are required to compete with private banks on a level-playing field, there is a good case for compensating them too on a competitive base,” Reserve Bank of India Governor Duvvuri Subbarao said in a seminar.
The governor, who is paid less than a twentieth of HDFC Bank managing director Aditya Puri, whom he regulates, believes that state-run lenders will not be able to attract talent if the government-determined salary structures are not raised to match private ones.
“There is also the risk that if the public sector bank compensation is not improved, the public sector may lose talent to the private sector,” said Mr Subbarao.
India may be the only nation discussing better rewards for bankers after excesses in the West due to skewed compensation sank global markets and forced governments to spend trillions of dollars to prop up the financial system.
Bankers’ greed in taking millions of dollars in bonuses led to street protests and legislation restricting such pay. The Financial Stability Board has since evolved a set of principles to govern compensation practices and the Basel Committee has developed a methodology to assess compliance.
In contrast, the Indian banking system had kept a lid on bankers’ pay, including private and foreign banks. The government determines pay at state-run banks, which have 70% market share. RBI has to approve pay at private and foreign banks which is based on their size and profitability.
“RBI has historically ensured that the compensation is not excessive, is consistent with industry norms, is aligned to the size of the bank’s business and that the variable pay component is limited,” said Mr Subbarao. “In respect of foreign banks, RBI has largely gone by the recommendation of the bank’s head office.”
Although remuneration is not a hot topic in India yet, the gulf between public and private sector lenders is huge. Chairman Bhatt’s annual pay is at `26.5 lakh, compared with `3.4 crore for HDFC Bank’s Puri. For ICICI Bank’s Chanda Kochhar, it is `2.08 crore. Many entry level positions at private banks yield higher pay than SBI top job from where one controls a fourth of the industry.
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