RBI seeks more authority over PSU banks

The Reserve Bank of India (RBI) is seeking to have a greater say in the appointment of directors and CEOs of government-owned banks, as it has in private sector banks.

The central bank enjoys greater control over the appointment of CEOs and directors of private sector banks through its "fit and proper" criteria, which is not applicable to public sector banks.

RBI wants the government to extend to public sector banks the "fit and proper status" guidelines currently applicable for appointment of CEOs and directors of private sector banks. The fit and proper guidelines involve the process of collecting information, exercising due diligence and constitution of a nomination committee of the board to scrutinise the declarations made by bank directors.

The appointment of CEOs of private sector banks requires the approval of the banking regulator, which enables it to exercise its judgement on the suitability of the candidates proposed. RBI even has the powers to remove
CEO of a private bank, as it did with a Mumbai-based small private sector bank over year ago. The central bank declined to extent the term of the CEO as sought by the bank. These provisions are broadly consistent with global best practices.

But in the case of public sector banks, the appointment of the CEOs as well as their removal is a matter to be decided only by the government. There is no legal provision as of now for the RBI to insist on the 'fit and proper' status of directors nominated by the government or elected by shareholders to the boards of the public sector banks.

RBI also wants the government to set up a new 'Board' on the lines of Public Sector Enterprises Board, for recommending to the government the appointment of chairmen and managing directors and executive directors and directors for public sector banks.