RBI wants more say in naming bank bosses

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 is the case with regard to private sector banks.

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

The RBI now wants the government to extend to public sector banks the "fit and proper status" guidelines.

The guidelines involve the collection of information, exercise of 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 thus requires the approval of the banking regulator, a norm that enables it to vet the eligibility of the candidates proposed.

The RBI even has the power to remove the CEO of a private bank, as it did in the case of a Mumbai-based small private sector bank over a year ago. The central bank declined to extend the term of the CEO, as was sought by the bank. These provisions are broadly consistent with the best global practices.

However, the appointment and removal of the CEOs of public sector banks is decided upon by the government. There is no legal provision at present for the RBI to insist on a "fit and proper" status for directors nominated by the government, or elected by shareholders to the boards of public sector banks.

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