RBI for splitting posts of chairmen & CEOs in PSBs

After implementing the move to split the posts of chairmen and chief executive officers (CEOs) in private banks in 2007, the Reserve Bank of India (RBI) is now considering the same step for public sector banks.

At a banking seminar organised by the Federation of Indian Chambers of Commerce and Industry and the Indian Banks' Association here on Tuesday, RBI Governor D Subbarao, said the central bank would discuss the issue with the government. However, as the government has a majority stake in public sector banks, Subbarao said it was important for the central bank to know to what extent it could enforce the “strict eligibility criteria” for the positions of chairmen of the boards of state-owned banks.

“An important criterion for deciding this would be to what extent we would be able to frame and enforce strict eligibility criteria for the position of the chairman of the board of a public sector bank,” Subbarao said, adding RBI's experience in the case of private sector banks was positive.

“Given our own positive experience, as well as the global endorsement for this position, the question is whether we should extend the principle of separation of the posts of chairman of the board and the CEO to public sector banks as well,” he said.

Following the recommendations by the Ganguly committee, RBI had implemented the splitting of the posts of chairmen and managing directors, a move aimed at ensuring more focus and vision in the functioning of banks’ senior management and providing banks with effective checks and balances.

The Basel Committee on Banking Supervision had also included the Ganguly panel's recommendations in its document titled 'Principles for Enhancing Corporate Governance', published last year.

“In terms of splitting the posts of chairman and CEO, it needs more contemplation on the appointment of a chairman. As of now, the government selects the CEO and if shareholders select the chairman, even then the government is the majority shareholder,” said State Bank of India Chairman Pratip Chaudhuri, when asked about what he felt about RBI's plan.

Bankers said in order for the strategy to be successful, there was a need to clearly define the roles of the two posts. “The separation in roles has worked fairly well in many cases. I've seen that happening in a couple of boards in which I'm a member. I think the separation would work only if the roles are clearly defined,” said Naina Lal Kidwai, country head (India) and director (Asia Pacific), HSBC.