Public sector banks grapple with empty boardroom seats, face challenges

8 of 11 nationalised banks don't have a chairperson

At a time that the Reserve Bank of India (RBI) is making fresh efforts to make bank boards more efficient and responsive to emerging challenges, most public-sector banks are operating with few independent directors, and just three of 11 nationalised lenders have a non-executive chairperson —once described as the ‘captain of the ship’ by the regulator.

 

Even more concerning, most public sector lenders have not got members in the chartered accountant category on their boards.

 

Bengaluru-based Canara Bank, a large public-sector bank with a total business of over ₹27 trillion, has not had a managing director and chief executive officer (MD & CEO) for almost four months now.

 

Apart from Bank of India, UCO Bank and Indian Overseas Bank, none of the other public sector banks has a non-executive chairman.

 

Stressing the chairman’s role, the RBI, which has issued draft norms this month to enable boards to facilitate a more focused and qualitative engagement on strategy and risk governance, had said: “The Chairperson of the Board shall have the primary responsibility for setting the agenda of the meeting.” 

 

The government had split the chairman and MD roles at public sector lenders in late 2014, a move seen at the time as an initiative to enhance the efficiency and transparency of the board. Board members in public-sector banks are appointed by the Centre.

 

A large public sector bank could have 16 board members. Apart from the MD and CEO, executive directors, RBI and government nominee directors, there are only two or three other independent directors on most bank boards, mainly from the shareholders’ director category. 

 

Central Bank of India has a part-time non-official director under the chartered accountants (CA) category in bank boards. However, most other public sector lender banks do not have such board members from the CA category.

 

The all-important audit committee of the board which directly interacts with the banking regulator, is to be headed by chartered accountants. Several banks, as a stop gap arrangement, have given the responsibility to someone else on the board who happens to have a CA background to head the audit committee, rather than a board member appointed in the CA category.

 

In the draft norms issued earlier this month, the RBI said that the ultimate responsibility for the bank’s performance, conduct and control rests with the Board. The norms proposed that the board may delegate certain matters to the board committees, sub-committees or senior management, along with reporting requirements as may be necessary.

 

The draft norms stress that the bank board must ensure that sufficient time is dedicated to strategy and risk governance. The revised norms are proposed to come into effect from 1 September, 2026.

 

Meanwhile, the government last week extended MD & CEO term of Bank of Baroda and Bank of India by three years. Both CEOs in these banks were appointed in 2023. Both will be completing six years after the end of the second term in 2029 to become the longest serving PSB chiefs in recent times.