PSU banks to have long-term CEOs, professional boards?

MUMBAI: The government is moving ahead with some of the recommendations made by the Reserve Bank of India committee on improving corporate governance in banks. This was disclosed by finance secretary GS Sandhu in Mumbai on Wednesday.
“Various steps are being taken on corporate governance issue in banks. We need better quality of nominees on the bank boards. We are also looking at increasing the terms of bank chiefs and separating the positions of MD & chairman,” said Sandhu.He added that the government was planning to make it mandatory for bankers at the deputy general manager and general manager level to go through a risk management course.
The committee headed by former Axis Bank chairman PJ Nayak was constituted by RBI governor Raghuram Rajan to suggest ways to improve corporate governance in public sector banks. The need to improve the governance structure arose after public sector banks reported a sharp increase in bad loans even as their rivals in the private sector did well. Former deputy governor KC Chakrbarti was the first to highlight the sharp difference in the asset quality between the private and public sector and had ascribed it to governance. Two of the key recommendations by the Nayak panel was to professionalise the management by distancing them from the influence of the finance ministry. A holding company structure was suggested as a means to achieve this. Secondly, it was also recommended that the post of chairman and CEO be separated and the boards have more accountability. The panel had suggested that the government could through the holding structure divest stake in PSU banks to ensure that they were professionally run.
Although the government has said that it will continue to retain the public sector RBI has said that there were still a number of measures that could be implemented. “The PJ Nayak committee does not require privatization. they have suggested that some governance issues may become easier if government stake is brought down. But there are number of recommendations they have made for public sector banks which can be implemented without bringing government stake below 50%,” Rajan had said after his recent monetary policy “For example, appointing bank board, putting government shares in an investment company structure managed by entities other than the government. The whole point is can we get the benefits of being in the public sector, which is the trust and stability with the benefits of having distance from some of the adverse aspects of being a government bank - which is sometimes allegations of undue influence,” he had said.