FinMin refuses to split CMD's post in public sector banks

Says this position doesn't enjoy absolute powers as is being claimed by some international experts

The finance ministry has turned down the Reserve Bank of India (RBI)’s proposal to bifurcate the post of Chairman and Managing Director (CMD) in public sector banks (PSBs), saying this position doesn't enjoy absolute powers as was being claimed by some international experts.     

Rejecting the RBI's proposal to restructure the board of PSBs, the finance ministry, in a communication to RBI Governor Raghuram Rajan, said “the board is headed by CMD (but that) does not mean that CMD enjoys absolute power and the board of the bank is subservient to CMD”.

The finance ministry said this in response to the Reserve Bank of India's contention that CMDs of public sector banks enjoy absolute power along with boards. The central bank, according to sources, had also said CMDs often dominate the board during their tenure and therefore it also recommended that the post of CMDs be separated to empower the board.

However, the finance ministry said the board is a collective decision making organ through which major decisions of the organisation are implemented and to say that CMD enjoys absolute power and disregards the decision of the board of the bank is not factual.

CMDs of public sector banks are thorough professionals, having long career in the banking sector and they are well aware of the issues to be tackled in this segment. It can be noted that in PSBs, the top executive is designated as Chairman and Managing Director, with the exception of the largest lender State Bank of India, where the top honcho is the chairman and there are four managing directors with clearly defined executive roles under her/him.

The posts of Chairman and Managing Director in the private sector are held separately. The RBI had set up a committee under the chairmanship of A S Ganguly in 2004-05 to study the issue of bifurcation of the post of Chairman and Managing Director in banks. The panel had  recommended such a bifurcation. Private sector banks in 2007 implemented this recommendations.