Rai alleges communication breakdown between Banks Board Bureau and govt

Banks Board Bureau (BBB) Chairman Vinod Rai on Monday hit out at the government for sitting over its slew of recommendations for public sector banking reforms.

He also pressed for banking regulations being made independent of ownership, a position similar to what Reserve Bank of India Governor Urjit Patel had taken in a public event a few days ago, in the light of the Rs 129 billion Punjab National Bank scam.

Rai submitted a 60-page report titled ‘Compendium of recommendations’ barely 10 days before the tenure of all the members of the BBB is set to expire on March 31, highlighting the work done by the Bureau in the last two years. In the report, Rai mentioned a communication breakdown between the National Democratic Alliance (NDA) government and the BBB, which was set up in February 2016 under the former Comptroller and Auditor General to usher in governance reforms in public sector banks.

Rai also underlined extracts of a letter sent by him to Finance Minister Arun Jaitley on July 26 to set out a framework on the role of the BBB, seeking time for a meeting with the minister to discuss those issues, one of which included the need for “an organic relationship between the government and the bureau.” “The bureau continues to await a meeting (with the FM),” Rai said in the footnote of the report.

“The bureau, as a body of experts on public sector banking, would be able to provide greater utility to the FM on matters relating to the governance and performance of PSBs, if there were to be greater organic linkage and dialogue with the finance ministry. At present, the body is merely functioning as an appointment board,” Rai said in his letter addressed to Jaitley.

Rai said the BBB was not aware of progress made on reforms as “there has been no further engagement with the government”.

In the letter, the BBB had suggested providing independent feedback to the FM on a half-yearly basis on the degree of implementation of its recommendations related to governance, reward, and the accountability framework.

Rai had told Jaitley that the BBB would be able to reduce the “conflict of interests that the RBI finds itself in as a regulator and supervisor of the banking entities in the public sector”. “In this regard, the RBI’s role as a regulator and supervisor should be made ownership-neutral,” Rai said. He mentioned this in the light of the RBI’s concerns that its role as a regulator was limited with respect to PSBs, “which is not on the same lines as its engagement with the banking entities which are not in the public sector”.

“While the government retains its majority shareholding, it is very much possible for the public sector to reach the same levels of efficiency as the private sector, provided governance regulations, supervision and the developmental agenda are allowed to be ownership-neutral,” Rai said in the foreword to the report.

Patel during a speech last week had pitched for making bank regulation ownership-neutral, saying the regulator had “very limited authority” over state-run banks since it did not have the power to replace the boards of these banks or force a merger, nor could it revoke the licence of a bank for any activity undertaken.

Rai provided a point-wise status update over the mandate entrusted upon the BBB. Of the 13 objectives, there was no pendency at the level of the BBB in seven, two of them were dependent upon the implementation of its recommendations by the government, three were work in progress and the BBB sidestepped from its role in one of them, according to the report.

The report even reproduced the BBB’s recommendations on the code of conduct and ethics in government-owned banks sent to the finance ministry in March 2017, “considering the immediate nature of the challenge before the nation and the need to ensure swift implementation”.

The BBB said it was yet to hear from the department of financial services on recommendations made on reforms in appointments, compensation, performance assessment and governance over a year ago.

The BBB had to sidestep from its mandate of helping banks in developing business strategies and capital raising plans after the government did not agree to its demands to allow it “to develop an independent perspective on stressed asset strategy and co-ordinated effort among PSBs towards recovery”. 

The BBB even facilitated a meeting of all chief executives of public sector banks with the director of the Central Bureau of Investigation and the Central Vigilance Commissioner, which was co-chaired by the RBI governor and Rai. “However, since the government had not acceded to the bureau’s request for a specific mandate on a stressed asset strategy, the bureau stepped aside from making any further efforts in the matter,” it said.

Process on for hiring new members

As the tenure of the Banks Board Bureau (BBB) nears its end, the Union government has set the ball rolling for the appointment of new members.

Finance ministry officials ruled out abolishing the BBB, which started functioning under its present Chairman Vinod Rai from April 2016 as an autonomous body to recommend improvements in governance at public sector banks.

The tenure of all BBB members was set to expire on March 31, sources said. Apart from former Comptroller and Auditor General Rai, its members include Department of Public Enterprises Secretary Seema Bahuguna, Reserve Bank of India Deputy Governor N S Vishwanathan, former Bank of Baroda chairman and managing director Anil K Khandelwal, former ICICI Bank joint managing director H N Sinor, and former Crisil chief Roopa Kudva.

Department of Financial Services Secretary Rajiv Kumar is the ex-officio member of the BBB. A search committee comprising the RBI governor and secretaries of the department of financial services and department of personnel and training may soon take a call on the new members of the BBB.

The BBB was set up on the recommendations of banker P J Nayak and the Union government announced the setting up of the bureau in February 2016.