Bank unions have declared the government’s decision to open up leadership positions in public sector banks (PSBs) to private sector professionals as a ‘dangerous precedent’ and demanded immediate halt to such designs.

Protesting against the government’s move, United Forum of Bank Unions (UFBU), an umbrella organisation of nine unions, has termed it as “a de facto privatisation of leadership” in the PSBs, Life Insurance Corporation of India (LIC) and non-life insurance companies. It has also called it “an attack on the public character of national institutions”. 

According to the revised consolidated guidelines issued by the Appointments Committee of the Cabinet (ACC), the top management positions in State Bank of India (SBI), the other 11 PSBs, LIC and non-life insurance firms are open to private sector candidates. 

The UFBU has demanded immediate withdrawal of these guidelines. The new rules allowing private sector executives to be considered for posts such as managing director (MD) at SBI and LIC, executive director (ED) in PSBs, whole-time director (WTD) and chairperson in public financial institutions are “a serious legal and constitutional transgression”, it said.

The unions noted that the changes in guidelines were introduced without amending the enabling statutes — the State Bank of India Act, 1955; the Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 & 1980; and the LIC Act, 1956 — all of which require parliamentary sanction.

“PSBs like SBI represent national trust, serving every section of society and anchoring of financial inclusion. They are not corporate enterprises driven by profit motives,” the UFBU said. 

The unions warned that allowing private sector leaders to helm these institutions would dilute their statutory responsibility, undermine accountability to Parliament and erode the ethos that has guided them since nationalisation.

UFBU demanded that all revised ACC guidelines in this regard should be kept in abeyance with immediate effect pending a comprehensive review.

It also called for the establishment of a joint stakeholder committee comprising the Department of Financial Services (DFS), Reserve Bank of India (RBI), Financial Services Institutions Bureau (FSIB), UFBU and independent jurists to review leadership-appointment frameworks for all PSBs and SBI.

The policy should be referred to the Parliamentary Standing Committee on Finance and all future reforms concerning public sector financial institutions be placed before Parliament.

The unions also pressed for internal succession across PSBs, preserving the principle that leadership should emerge from within the public-sector banking cadre.

Earlier this month, the ACC revised the guidelines for appointment at the top management level in both public sector banks and insurance companies.

As per the new guidelines, one position of SBI MD and LIC MD would be open for private sector candidates. Both the organisations have four MDs. ED positions of other public sector banks have been opened for private sector candidates.

By authorising lateral entry of private sector executives into statutory leadership positions, removing the Annual Performance Appraisal Report (APAR)-based merit evaluation for top posts and replacing it with “behavioural and competency assessments” by private HR agencies, it reduces transparency, invites bias and cronyism and weakens vigilance oversight.

These guidelines alter the public character, accountability framework and legislative intent underlying the nationalisation of banks and the SBI Act, 1955, that too without any Parliamentary amendment or consultation, it said.

The State Bank of India Act, 1955 (Sections 19 & 20), the LIC Act, 1956 (Sections 4, 5 & 22), and the Banking Companies Acts (1970/1980) explicitly vest appointment powers with the Central Government in consultation with the RBI (for banks) or Insurance Regulatory and Development Authority (for insurance), within a framework of public accountability, statutory discipline and parliamentary oversight, it said.

Opening MD & CEO and ED posts to private candidates effectively changes ownership and governance character - a material alteration of the statutory purpose - again requiring Parliamentary sanction, not executive notification, it said.

Under Articles 73 and 77, executive actions of the Union must conform to law made by Parliament. Without amendment to the enabling statutes, the executive has no competence to alter the structure of appointment or qualification of statutory office-bearers of PSBs and SBI, it added.

This unilateral policy shift converts public sector leadership roles into open-market appointments, thereby dismantling the historic model of career-based succession and institutional continuity in PSBs, UFBU pointed out.

In the past, even the deputation of IAS officers to SBI top management proved a failed experiment, owing to a lack of domain expertise, disconnect with banking ethos and internal resentment. Re-opening such gates under a new nomenclature amounts to the same policy error, it said.

Moreover, outsider appointment without parliamentary oversight amounts to executive privatisation of statutory institutions, endangering financial sovereignty and public trust, it added.