By Santosh Kumar Mohapatra
On 4 October, in an executive order, the Appointments Committee of the Cabinet (ACC), approved revised consolidated guidelines for appointment of Whole Time Directors, Managing Directors, Executive Directors and Chairpersons in public sector insurance companies like the Life Insurance Corporation of India (LIC), Public Sector General Insurance (PSGI) Companies and the Public Sector banks including the State Bank of India.
The Department of Financial Services (DFS) under the Union Ministry of Finance (MoF) has formally circulated these revised procedures to all public sector banks and state-owned insurers. In a major procedural change, the Financial Services Institutions Bureau (FSIB), which is responsible for selecting and recommending candidates for top financial appointments, has been authorised to engage independent human resource agencies to assess applicants from the private sector. The proponents of these reforms argue that they are intended to strengthen professionalism, governance, accountability, innovation, competitiveness, and accelerate digital transformation in the public sector banking system and the insurance industry.
However, this has triggered a reaction among public sector employees and progressive intellectuals. In different statements, the All-India Insurance Employees’ Association (AIIEA) of the public sector insurance industry and the United Forum of Bank Unions (UFBU) representing nine major officers’ and workmen’s unions across all banks expressed strong reservations and vehemently opposed the moves. They demanded that the government keep in abeyance the revised guidelines in dispute and set up a joint stakeholder committee to review the leadership appointment frameworks and refer the entire policy to the Parliamentary Standing Committee on Finance. The introduction of private professionals signals a subtle and ingenious shift in the governance architecture of state-owned financial institutions and a serious legal and constitutional transgression a de facto creeping privatisation of public sector financial institutions.
The public-sector banks and insurance companies are pillars of the edifice of India’s economic progress and prosperity, and have played a vital role in extending financial services to underserved rural and semi-urban populations. These organisations are governed by Acts of Parliament- the LIC Act 1956, General Insurance Business (Nationalisation) Act 1972, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 and State Bank of India Act 1955. Their management structures, roles and appointment processes are clearly def ned in these laws. The issuance of new guidelines without any amendment to the above governing Acts amounts to ‘executive overreach’, ‘executive privatisation’ of leadership in public sectors financial institutions, and endangerment of financial sovereignty and obliteration of public trust enjoyed by the public sector.
Allowing lateral entry from the private sector could convert public sector leadership roles into open market appointments, thereby dismantling the historic model of career-based succession and institutional continuity in public sector banks and insurance. Work culture, management-union relationships, labour law practices, and trade union activities in private and public sectors are not the same, primarily driven by their core objectives. The public sector focuses on service, while the private sector aims for profit maximisation. This move will compromise the institutions’ original purpose and regulatory frameworks and strike at the very ethos of nationalisation, which ensured that banking and insurance serve the public interest rather than private profit.
Public sector unions demand greater job security, dignity of life, conducive working atmosphere, and decent wage, while there is a wide wage gap in the private sector without much job security. In the past, deputation of IAS officers to public sector financial institutions has proved a botched experiment, owing to lack of domain expertise, internal antipathy.
Some argue that private banks are more efficient, but many private banks have collapsed and were rescued by public sector banks. Before nationalisation, from 1913 to 1968, 2132 banks were closed, liquidated, ceased operation or amalgamated. After nationalisation from 1969 to 2020, 25 private banks have failed which are rescued or taken over by public sector banks. In a recent example, YES Bank was bailed out by the State Bank of India in 2020. The world has experienced many financial crises because of the collapse of private financial institutions, and governments around the world have spent trillions of dollars to bail them out.
The glaring example is the global financial crisis of 2007-09. Both public sector and private financial institutions have common problems that are not linked with leadership. The escalating NPAs and subsequent huge loan write offs coupled with rising banking frauds, have affected both public sector and private banks.
Hence, entry of private sector professionals into senior leadership positions in public sector banks and in insurance companies will not solve any purpose. Rather, a conflict of interest will arise when private professionals in public sector financial institutions face a situation where their personal or financial interests, often stemming from their private work, could improperly influence their official duties and decisions.
The writer is an Odisha-based economist and columnist
