| The Securities and Exchange Board of India's proposal to make changes in Clause 49 of the listing agreement has led to compliance issues for listed public sector banks.
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| The Reserve Bank of India (RBI) has taken up the issue with Sebi and is likely to suggest some changes to the listing agreement for the listed banks soon.
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| As per the proposed move, the RBI may recommend that such stipulations may not apply to banks which are guided by separate statutes such as Banking Regulation Act, Nationalisation Act, SBI Act and the Companies Act.
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| While the proposed recommendations state that nominee directors will not be considered as independent directors, the RBI is of the view that nominee directors in listed public sector banks are appointed by the government.
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| Since the government is a sovereign body, it cannot be compared with private companies which appoint independent directors on their boards.
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| The concern of Sebi is valid for private sector companies which appoint independent directors and also have an interest to protect.
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| The conflict of interest is much more since these private individuals also control the board. Such control does not arise in case of government-appointed independent directors in banks and institutions.
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| While it was clarified that these guidelines would not impact banks legally, it might create compliance issues for most of the listed public sector banks.
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| Prior to the proposal, nominee directors of institutions were considered independent directors.
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| Meanwhile, the Sebi proposal about not having a blanket provision that independent directors should not be related to each other has also invited a lot of criticism. According to law experts, mere declaration of relationship does not serve any purpose as far as corporate governance is concerned.
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| Meanwhile, the RBI has pulled out all its nominee directors from banks and appointed retired RBI officers. The move was aimed at removing conflict of interest in managing the affairs of the banks as regulators and directors.
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| Earlier, it had pulled out its nominee directors from almost all the private sector banks. Observers have been appointed as a transitional measure mostly in respect of those banks that are yet to fully comply with the RBI’s guidelines of ownership of governance. |
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