BBB seeks bigger say in bank governance
Wants to appoint non-official directors
The Banks Board Bureau, tasked to advise the government on selecting bosses of public sector banks, has sought a wider role. The original terms of reference for the bureau headed by Vinod Rai have not been made public yet. The bureau and government are in discussions to amend the scope of work, according to bank executives.
Appointments of non-executive directors and a greater role in governance of banks were expected to be part of the bureau’s revised terms of reference, an official said.
The bureau was set up as an autonomous body to improve the governance of public sector banks. Its mandate, as spelt out by the government, was to recommend names for selection as heads of state-owned banks and financial institutions and help them develop strategies and capital-raising plans.
While the bureau has taken over a part of the appointment process, the final decision is taken by the Appointments Committee of the Cabinet. Also, the government on its own chooses non-official directors for bank boards. Raghuram Rajan, during his stint as governor of the Reserve Bank of India, had strongly favoured a role for the Banks Board Bureau in selecting non-official directors. As the bureau gained experience, it would make sense to allow these decisions also to be taken by it, Rajan had said. Over time, as the bank boards were professionalised, executive appointment decisions should devolve from the bureau to the boards themselves, Rajan had said.
Public sector bank executives said the bureau’s working pace was perceived as slow. The time taken between selection and recommendation of candidates is considerable.
Plus, Rai has been speaking on a range of topics, from consolidation in banking to bad loans to governance. This has created the impression the bureau is working on all fronts, diluting its focus as a talent hunter. The bureau is not specifically engaged in driving banks to clean up their books, but Rai has commented on that as well with some authority. In August, Rai said banks’ clean-up should precede their consolidation.
But the bureau has not been very proactive in building strong bank boards, going by the number of vacancies in key positions.
An RBI official familiar with the bureau’s operations said work would gather pace in the second half of this financial year. Much of it will involve appointments and, perhaps, capital raising. Many top slots at public sector banks will become vacant in 2017 and 2018 and work has to start now.
RBI Deputy Governor SS Mundra warned about the severe talent crunch in public sector banks on Wednesday. “Of 20 CEOs, eight are retiring in 2017 and 10 are retiring in 2018,” he said at the State Bank of India’s banking and economic conclave.