Khandelwal report on HR in banks

The report on HR in banks, prepared by a committee headed by A K Khandelwal, former Chairman of Bank of Baroda, came out in June. It wasn't made public. I happened to get a copy of it last week. I am concerned about the focus on variable pay in the report. As I argue in my ET column, HRD in banks is more than just pay, I have serious concerns about whether such schemes can work in the public sector.

There is much talk about the public sector losing talent because of poor pay relative to the private sector. The IAS wanted a huge job in salary to make jobs comparable to the private sector. The army, as I recall, wanted the Chief of staff, to paid Rs 1 crore. IIT faculty agitated for pay superior to what the Pay Commission wanted. The IIMs grumble about pay. And, of course, all PSUs would like pay to be benchmarked to the private sector.

In many ways, pay in academics is a lot better than it has ever been before - and there is no indication that it is drawing in superior talent. Nor are there signs of the opposite kind, that the talent coming into IAS, for example, is poorer than in the past. Senior IAS officers have told me that the composition of probationary officers is changing- more come from lower middle class and rural families and they may lack polish but they are very bright and committted. Competition for the administrative services remains fierce- as fierce as that for IITs and IIMs.

So, we should not make the mistake of seeking parity in pay across the public and private sectors. The two offer different career choices and different lifestyles. This goes for public sector banks as well. They need to improve pay but not catch up with private sector either in what they pay or how they pay (fixed pay or variable pay).

Limit IIT directors to one term

I wrote in my last post about the increase in the retirement age of IIT directors from 65 to 70. I said I did not favour the idea. Some people wrote in saying that they would like to see cogent reasoning for my position, apart from the fact that youth is to be preferred.

Well, the main reason is that in our institutions of higher education, we do not have a system of accountability for the director. So, we lack a proper basis for extending the director beyond 65 or giving him a second or third term. The decision would become subject to the whims of government or the Board.

The IIMs have long had a convention of a single term for the director and this has served them well. It was convention put in place by IIMA's legendary Ravi Matthai. I elaborate on this in my ET column, Let IIT directors retire at 65.

IITs allowed to raised retirement age to 70

The ministry of HRD has allowed the IITs to raise the retirement age for faculty to 70, according to the Hindustan Times. The retirement age of IIT directors can also be raised to 70, which would allow several directors to stay on for a second term. This is a bad idea.

Letting IIT directors stay on for until 70 is bad not just for the reason mentioned in the report, namely , that it will render IIT directors vulnerable to outside pressures. We need younger people at the top, not older ones. And, believe me, there is plenty of talent in the IIT system and outside the country that can be tapped.

Ditto with faculty. Since extensions will, in effect, be at the discretion of the director, this will render faculty totally subservient to the director. It is also not good for faculty to hang around an IIT or IIM for too long- not good for them, not good for the institution. Even as it is, faculty stay on for 30-35 years. I shudder to think of having faculty around for, say, 45 years. Faculty must be extended beyond 65, if at all, provided they have not spent more than 25 years at the institution.

I sincerely hope this does not get extended to the IIMs. The IIMs, by and large, have followed the principle of a single term for the director although, regrettably, this healthy principle was not followed in the recent past in the case of the directors of IIM Calcutta and IIM Lucknow. There is very little accountability among IIT and IIM directors and allowing them to reign for 10 years risks causing serious damage.

Basle 3 doesn't look promising

The BIS will soon unveil proposals for bank capital under Basel 3. From what has been revealed so far, these won't be tough enough on banks. The new capital requirements will be phased in over a longish period. Regulators are worried that tougher requirements will impact on the weak global recovery but this is not supported by BIS research on the impact of additional capital.

I'm afraid it doesn't look as though policy-makers are serious about preventing recurring banking crises. Maybe they just want to shrug these off as part of the ups and downs of capitalist economies?

More in my ET column, Banks, relax- until the next crisis.