Banks Board Bureau pushes for governance reforms in public sector banks

The Banks Board Bureau (BBB) has reiterated some of the pending demands related to governance in public sector banks (PSBs) to the central government, including complete autonomy to their boards to decide on organisational structure.

The BBB, led by Bhanu Pratap Sharma, has released a list of activities undertaken between October 2018 and March 2019 on its website, as a part of the routine process.

“After detailed review, the earlier recommendations of the Bureau have been reiterated or fresh recommendations made available to the government for further consideration,” the BBB said, listing at least seven key areas. Financial Services Secretary Rajiv Kumar is also part of the BBB.

The BBB has told the government to improve the operative environment and selection process for filing up post of directors on PSB boards to “attract the best board-level talent”.

In its review, the BBB highlighted how the post of managing director and chief executive officer of Canara Bank couldn't be filled up, despite two attempts at looking at people from the private sector.

“The vacancy was advertised twice. However, it was met with less than enthusiastic response on both occasions… The Bureau has separately recommended to the government the measures which may improve the pool of talent for filling up such vacancies,” it said.

The BBB has asked the government to give “complete autonomy” to bank boards to decide the organisation structure. A committee under veteran banker P J Nayak, which had submitted a report in 2014 to review the governance of banks, had suggested a similar move, but only in the final phases of the review.

The Nayak committee had recommended a three-phased reform in PSBs. The first stage would be formation of a BBB, which will be taken over by a holding company of PSBs in the second phase and then it will be followed up by empowering and strengthening the boards in the third phase. “Revamp credit governance architecture in nationalised banks to reinforce efforts to minimise credit costs and enhance efficiency of credit allocation,” the BBB has also recommended.

The BBB has asked the government to introduce a performance-based compensation through Employee Stock Option Scheme, which is different from Employee Share Purchase Scheme, and Performance-Linked Incentives in a bid to “incentivise maximisation of risk adjusted income” and discourage “operational inefficiencies by aligning compensation with right performance metrics”.

State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB) were in talks to draw a performance-based compensation plan — a first-of-its-kind move among PSBs — last year.

“They may not be getting adequate rewards under the existing bilateral settlements with the kind of risks the senior management takes,” PNB MD and CEO Sunil Mehta had said in an interview to Business Standard in July last year. Many private banks have a component of variable pay in their salary structure.

The BBB said that the boards of banks should be allowed to “recommend personages to the government who could be considered for appointments to address specific competency gaps on the boards”.