FinMin mulls fixed 5-year term for PSB chiefs

And, 3 years for EDs, beside changes in selection criteria for boards; proposals discussed with Finance Minister Arun Jaitley

The Union finance ministry is considering a proposal to provide a fixed tenure of five years to heads of public sector banks (PSBs). The aim is more operational stability and accountability.

It is also considering changes in the appointment procedure of wholetime directors and revising the criteria for selection of non-official directors on PSB boards.

“We have proposed a fixed tenure of five years for chairmen & managing directors of PSBs,” said a ministry official. The department of financial services has discussed its proposals with minister Arun Jaitley, who will decide.

The department has argued that a fixed tenure would give CMDs enough scope to strategise and take action, beside increasing their level of commitment and accountability.

The problem, though, is that heads of public sector undertakings (PSUs) in other sectors would also ask for a fixed tenure. The retirement age for all PSU executives is 60 years. So, generally, the term of a CMD varies between one year and five years.

At present, many suitable candidates are not selected because they have less than two years of residual service, after serving as executive director (ED) of a bank for at least one year. Both are minimum conditions.

The P J Nayak committee on governance changes in PSBs had also recommended a minimum five-year tenure for CMDs and a minimum three-year tenure for EDs.

The changes to bank boards are aimed at improving their corporate governance. The ministry noticed a lack of transparency in the appointment of non-official directors on PSB boards. Concerns were also raised on the appointment of shareholder and non-official directors on bank boards, as most of them were usually chartered accountants; it was felt they could use their position to influence decisions. The finance ministry wants to induct professionals from various fields on boards.

The board of a public sector lender usually comprises a CMD, up to three EDs, a nominee of the government (mostly a finance ministry official) and one nominee from the Reserve Bank of India, two employee union nominees, up to three shareholder directors and two non-official directors.

LONGER INNINGS FOR STABILITY

* Fixed tenure of 5 years to CMDs will provide operational stability
* Bank chiefs will become more accountable and get longer time to execute ideas
* Nayak panel had also proposed 5-year term for CMDs and 3-year for EDs
* Decision not easy for FM as other PSU chiefs will also ask for 5-year term
* FinMin also considers changes in appointment procedure of whole-time directors
* It might also revise criteria for selection of non-official directors on bank boards
* Bank board reforms to improve their corporate governance