Govt, FIs to restrict bank nominees to 3

The government and financial institutions have jointly decided not to appoint more than three directors in any public sector bank (PSB) to represent them as shareholders, a top government official said.

In all those PSBs where the government and institutions' nominees are more than three, the senior-most director by age would be asked to resign, the official said.

The rest of the board would comprise independent and wholetime directors, the official clarified.

The policy of restricting government and FI nominees on bank boards is now in place, the official added. These three directors are elected at annual general meetings of banks.

Till recently, the bank boards had separate representatives from the government and from institutions such as the Life Insurance Corporation of India and SUUTI.

The change, however, does not include nominated independent directors appointed by the government in each public sector bank and often filled by political appointees.

In a 16-member board of a large bank, the official said, apart from the chairman and wholetime directors, the board has representatives from shareholders, employees and shareholders and the Reserve Bank of India.

The rest are independent directors. By reducing the number of directors representing the shareholders as directors, the government will get the power to appoint one more director on the bank's board, say analysts.

But bankers say in order to inculcate greater corporate governance in the public sector banks; it is the nomination of independent directors by the government which needs to be changed.

The banking industry requires highest levels of expertise and any change in the nomination of independent directors would be welcome, said H N Sinor, chief executive officer of Indian Banks Association.

In the last few years, the board of government-owned banks was filled with unqualified political appointees and led to the banks underperforming compared with private sector peers. In many banks, the government-nominated independent directors accounted for almost half of its board.

The government normally nominates political activists affiliated to the ruling party as independent directors on boards of public sector banks, which deprives these banks of knowledge and experience that experts could provide.