reserve-bank-proposes-to-shore-up-bank-boards-summary

Context: The Reserve Bank of India (RBI) has recently proposed a stronger board for banks for improving governance and stringent norms for CEOs and whole-time directors (WTDs). 

About Bank Board Bureau(BBB)

About 

  • It has its genesis in the recommendations of ‘The Committee to Review Governance of Boards of Banks in India, May 2014 (P. J. Nayak committee)’.
  • It is an autonomous body.

Functions

  • The government, in 2016, approved the constitution of the BBB as a body of eminent professionals and officials to make recommendations for appointment of whole-time directors as well as non-executive chairpersons of Public Sector Banks (PSBs) and state-owned financial institutions.
  • However, the Ministry of Finance takes the final decision on the appointments in consultation with the Prime Minister’s Office.
  • It has also been assigned with the task of recommending personnel for appointment as directors in government-owned insurance companies.
  • BBB engages with the board of directors of all the public sector banks to formulate appropriate strategies for their growth and development.
  • It is also tasked with improving corporate governance at public sector banks, building capacities, etc.

More about the suggestions on governance of commercial banks in India

  • Applicability
    • The norms are applicable to private, foreign and public sector banks.
  • Eligibility:
    • RBI has said board members should not be a member of any other bank’s board or the RBI and also should not be either a Member of Parliament or State Legislature or Municipality or other local bodies.
  • Composition:
    • Board of directors of a bank should not be less than six and not more than 15, with a majority being independent directors.
    • A director on the board of an entity other than a bank may be considered for appointment as a director on a bank’s board, If the person is not an owner of an NBFC or a full­time employee and that the NBFC does not enjoy a financial accommodation from the bank.
    • The upper age limit for CEO and WTDs of banks is suggested at 70 years, which is a norm for private banks at present. 
  • Functioning
    • “The board shall meet at least six times a year and at least once every 60 days.
  • Other guidelines
    • The discussion paper also suggested appointment, re­appointment, and termination of whole-time directors and chief executive officers should be with the previous approval of RBI.
    • Banks will also be free to set a lower age for such appointments. 
      • It is observed 10 years is adequate for a promoter of a bank to be as chief executive officer of the bank to stabilize operations, after which a professional CEO can take over. 
      • There are a few private banks where the promoter continues to be a CEO even after 10 years of operation.
  • These new norms will come into effect within six months after being placed on the RBI’s website or April 1, 2021, whichever is later.

Source: TH

Source:Economic times