Govt tightens grip on state-run banks

LS okays an amendment that allows Centre to supersede boards of state-run banks.

The Lok Sabha today passed an amendment that empowers the government to supersede boards of public sector banks, except the State Bank of India (SBI).

The government can supersede a public sector bank's board for a maximum of a year, during which period a new board has to be constituted.

The Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institution Laws (Amendment) Bill, 2005, also allows the government to double the number of whole-time directors in PSBs to four.

PSBs have only two wholetime members chairman & managing director and the executive director on the board.

The maximum number of shareholder-elected directors will be reduced by half. This means there could be only three shareholder-elected directors.

Also, it is not mandatory for the Reserve Bank of India (RBI) to have nominees on the boards of PSBs. RBI will have the option to appoint its nominee as director only in case of exigencies.

The bill amends two Acts "" the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980. It will now be tabled in the Rajya Sabha.

On the power to supersede boards of PSBs, finance minister P Chidambaram said, "It is just a provision. Hopefully, I don't think we will need to supersede a bank's board since the Reserve Bank of India is constantly monitoring the banks."

The bill also proposes to improve corporate governance, and aims to bring operations of these banks in line with the current international practices.

Chidambaram also responded to issues about the recent finance ministry directive to PSBs to take approval of their respective boards before implementing hikes in prime lending rates.

He said, "The government is the owner (of PSU banks) and so, the boards are accountable to us. The boards should know the views of government, central bank and independent nominees."