The Trend of Appointing Retired Civil Servants as Board Chairmen in Indian Banks
In recent times, a notable trend has emerged in the Indian corporate sector, particularly among private banks. This trend involves the appointment of retired civil servants to chair their boards. This pattern has gained attention due to the decision by HDFC Bank to appoint Rajiv Kumar as its part-time chairman, pending approval from the Reserve Bank of India (RBI). Mr. Kumar is a retired Indian Administrative Service (IAS) officer who has held several prominent positions, including finance secretary, financial services secretary, and chief election commissioner (CEC).
This practice of selecting retired IAS officers for such roles is not new. However, it has raised questions about the rationale behind this choice. For instance, HDFC Bank previously faced challenges with its former chairman, Atanu Chakraborty, another retired IAS officer. His resignation in March 2023 was attributed to differences in opinion regarding the bank’s operations. In response, HDFC Bank appointed Keki Mistry as a temporary chairman, whose tenure was extended until the third week of September.
Additionally, the bank initiated a legal review to assess Mr. Chakraborty's allegations about the bank's practices. The findings concluded that these claims were not substantiated. The appointment of Mr. Kumar for a three-year term marked a third significant decision, which sparked discussions about the appropriateness of having a former CEC in a banking role.
The case of Manohar Singh Gill, a former CEC who entered politics and became a minister, raises similar concerns about propriety when a former CEC takes up a board position in a listed bank. Despite these concerns, the trend of hiring retired IAS officers continues among major private-sector banks.
For example, ICICI Bank has Pradeep Kumar Sinha, a former Cabinet secretary, as its chairman. Kotak Mahindra Bank has C S Rajan, a former chief secretary to the Government of Rajasthan. Axis Bank and Indusind Bank also have retired officials from the RBI and SBI, respectively, serving as chairmen. Bandhan Bank recently appointed Debasish Panda, a former insurance regulator, as its chairman.
This practice of employing retired civil servants for non-executive roles is not new. Ashok Jha, a former finance secretary, joined Hyundai India after presenting the Budget for 2007-08. B G Deshmukh, a former principal secretary to the Prime Minister, had to wait for months before joining the Tata group.
Retired civil servants bring valuable experience and knowledge of government functioning, which is crucial for companies operating within a complex regulatory environment. Their expertise in navigating government systems can be an asset for financial institutions.
Moreover, the presence of retired civil servants in key regulatory roles has influenced the preference for such individuals in corporate boards. Since 2018, the RBI has been headed by retired civil servants, and Irdai has been led by IAS officers for the past eight years. Sebi, except for a brief period, has also been chaired by retired civil servants since 2005.
This trend suggests that financial-sector entities may prefer retired civil servants due to their familiarity with the regulatory landscape. While senior professionals can certainly perform the role of steering boards, they may lack the same level of understanding and connections with regulators from the civil services.
To create a more equitable playing field, the government must consider opening regulatory jobs in the financial sector to candidates from the private sector. Over time, this could lead to a pool of private-sector professionals capable of leading these regulatory bodies, reducing the reliance on retired civil servants.
Ultimately, while the practice of appointing retired civil servants to chair boards has its merits, it is essential to ensure that the financial sector remains competitive and diverse. This balance will help foster an environment where both public and private sector professionals can thrive.
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