It is not the best of times for public sector banks (PSBs) in India, neck deep in trouble due to deteriorating asset quality. In an unprecedented rejig, the government has transferred the heads of three large PSBs to smaller banks even though they have spent less than two years in their current roles. This means they were struggling to cope with legacy issues and capital constraints, but the government was in no mood to show leniency. The heads rolled because they did not deliver and failed to tackle the huge accumulation of non-performing assets or NPAs.
Bank of India's Chief Executive and Managing Director Melwyn Rego, who was handling assets over Rs6 lakh crore, will now head Syndicate Bank with assets of Rs3 lakh crore-plus. Usha Ananthasubramanian, MD and CEO of Punjab National Bank (PNB), is moving to Allahabad Bank. It is a small portfolio as she will now handle assets over Rs2 lakh crore instead of Rs6 lakh crore. Earlier, IDBI Bank chief Kishor Kharat, who used to manage Rs3.5 lakh crore, was shifted to Indian Bank, which has an asset base of nearly Rs2 lakh crore. Rego was deputy MD at IDBI Bank for two years before he was promoted as Bank of India CEO.
The recent shifts outline how keen the government is to resolve the long-standing NPA crisis. But the question remains: Is this move justified? Let us delve into it further.
Those shifted from their current positions did not create the existing NPA mess, especially at these banks, if one takes into account their movements to and fro. Prior to joining IDBI Bank, Kharat worked with Union Bank of India. Rego came to Bank of India from IDBI Bank as he was promoted. Ananthasubramanian joined PNB from Bhartiya Mahila Bank. All of them inherited huge and rising NPAs from their predecessors.
Dip in Asset Quality
The banks' profitability was affected due to Reserve Bank of India's (RBI) asset quality review, which called for higher provisioning. The incumbents joined their respective banks at the end of 2015. During the first full financial year in 2016/17 (nine-month results are available) under their stewardship, NPA provisioning went north due to regulatory diktat. For instance, under Rego, Bank of India's provisioning went up to Rs7,000 crore from around Rs3,500 crore. Similarly, the provisioning doubled under the tenure of PNB's Anantha-subramanian and IDBI's Kharat.
The tenure of less than 18 months is too short to judge the performance of a Chief Executive heading a bank with an asset size of Rs4-6 lakh crore, especially in a challenging environment. There was limited capital support from the government and the valuations had hit rock bottom, which restricted their ability to raise capital from the market.
Stuck Resolution Process
No support came from the existing resolution mechanism either. Consequently, NPAs piled up with no recovery in sight. The government and the RBI are working towards some effective solutions but, meanwhile, these CEOs are gone.