India’s largest lender State Bank of India on Monday advertised that it is hiring over 1800 probationary officers. The high point of this recruitment drive was the package of around Rs 8.4 lakh or Rs 70,000 a month the bank was offering executives posted in a big city like Mumbai. While the package includes rental of up to Rs 29,500 per month, it is almost twice what is offered in some private banks for executives at the bottom of the ladder. Bankers say that in every competitive examination a large number of candidates are those who are already employed in private banks.

Now compare this at the CEO level where the equation gets inverted. The CEO who had been most vocal in highlighting the discrepancy was former State Bank of India chairman OP Bhatt. Bhatt under whose tenure SBI reported record profits pointed out that the salary of a psu bank chairman was only a fraction of what was being offered in much smaller private sector banks. At that time Bhatt’s own annual package was around Rs 26.5 lakh while Aditya Puri, chief of HDFC Bank took home a package of around Rs 3.4 crore. Since then the difference has only grown. Last year Aditya Puri was the highest paid with an annual package of over Rs 5 crore.

To most observers it would appear that the government is unnecessarily penny pinching when it comes to CEO pay. Their reasoning is that salary hikes are being blocked by the bureaucracy who does not want psu employees to get more than babus of an equivalent rank in the government. Former RBI governor D Subbarao too supported psu chiefs on this issue pointing out that if psu banks had to compete with private sector lenders there should be a level playing field in salaries.

So why is there such an inverse wage structure in public sector banks? It is no one’s case the executives recruited by the public sector banks are not deserving. SBI has for long been known to pick up the brightest and the best among India’s youth and continues to be an employer of choice particularly for candidates from outside metros. Historically, this has worked well for the bank as the new recruits slipped into leadership roles as branch managers.

What has changed the game is technology. Private banks are getting more out of their branches by putting more and more items under the self-service option. As a result a large number of executives are engaged in selling rather than in actual operations and these banks therefore do not find the need to hire the best and brightest through competitive examinations. Low-end jobs jobs are outsourced. It is such cost cutting at the lower-end leaves enough head room in the wage to income ratio for the bank to pay more to senior executives.

If the top management at PSU banks aspire to get the same remuneration as their counterparts in the private sector, their banks will have to increase their productivity manifold. While this is certainly a challenge, it is not implausible. Bankers are betting on transactions moving to the mobile platform where the cost of transactions is expected to be a small fraction of other alternate channels.