What’s The Way Forward For The PSBs?

Regardless, I would like to touch upon the qualitative factor that has led to such under-performance of the banks. The management quality and the autonomy given to the heads of the PSBs remains one of the primary causes why these PSBs are lagging in their performance. It’s an open secret that the functioning of these banks is largely controlled by political parties and the secretaries in power, who many a times use state-owned banks to achieve objectives which may not be prudent from a business perspective, such as forcing to lend to a sick company or extracting dividends when they are starved of funds. Infact they are not allowed to run as a business entity whose primary function is to earn good profit and give excellent service to its customers, both of which are currently lacking among the PSBs. 

There are some practical solutions which may solve many of the problems currently faced by the PSBs. First is the selection of the heads of these PSBs. In most cases the heads of these banks are selected not purely on a merit basis but because of other hidden considerations. Moreover, anyone from private banks having the right set of qualifications and experience should also be allowed to lead a PSB. More importantly, the heads of the PSBs should be given the required autonomy and freedom to run the banks. To attract and retain talent, the biggest change should be brought in the compensation of these heads.

I believe there is a large difference in the compensation of an employee heading a private sector bank and a public sector bank. To cite an example, for FY14, the then CMD of Bank of Baroda(BOB), S S Mundra, was withdrawing a salary of around Rs 0.26 crore as compared the salary of Aditya Puri of HDFC Bank who earned more than Rs.6 crore in the same period – i.e. 23 times more than the former. And this disparity has grown over the years. Such a huge difference in the package can lead to unethical practices by the CMDs of PSBs, which obviously will hamper their performance. We have recently seen a case where Syndicate Bank’s former CMD, SK Jain, was suspended in August after he was arrested for allegedly accepting a bribe. He was sacked in September.

We have already seen some corrective steps taken by the new government with the cancellation of the selection of the CMDs of six PSBs and 14 executive directors following the recommendations of a committee. And now they have formed new panels to interview candidates to fill those posts. I hope this is a first step towards the strengthening of the PSBs and more will follow. There is no reason why these banks with such a long history of operation cannot be as competitive as private banks.

This issue also has a special report on the top ten multi-baggers of the last one year ending November 2014. Our research team has done fundamental as well as technical analyses of these stocks and the way forward for them. The important thing that I want to highlight is that out of the top ten companies we have recommended, seven stocks were spotted by us in the last one year. Many of them were identified at the early stage of their ascent. For example,Gati was first recommended at a price of Rs 49.25; similarly TVS Motor was recommended at Rs 115. This clearly shows our experience and research strength in recognising the multi-baggers. Please do write to us about what you liked and disliked in this issue. Send your feedback to comment@dsij.in.