Mint Road gives banks HR leeway

Commercial banks have been freed from having to seek the Reserve Bank of India's (RBI) clearance before deciding on the heads of treasury and international divisions, chief dealers and dealers.

In a circular, RBI said banks can now make the appointments without any reference to it, dispensing with the earlier requirement of prior approval.

However, RBI has advised banks to put in place a rigorous due diligence process to ensure the "fit and proper" status of applicants before appointment.

RBI had in May 1996 issued a circular asking banks to obtain prior concurrence of the RBI for naming persons as head of treasury/international division and persons recruited from outside the banking industry as dealer/chief dealer.

The 1996 circular was issued following the securities scam of 1992. Fourteen years after the scam, this restriction had lost its significance leading to procedural easing, said a senior banker.

The banking regulator said the boards of banks should fully satisfy with the credentials of appointees. Bank of Baroda and Canara Bank officials said the circular dispenses with a procedural formality as it had lost relevance with banks anyway following a policy of due diligence.

A senior HDFC Bank official said "This circular eases the procedure and correspondence for private banks and foreign banks looking to extend the tenure of their foreign exchange dealers. The banks can internally determine whether they want to extend the tenure and need not notify the RBI."

As per RBI's Internal Control Guidelines, banks were earlier advised to follow a rotation policy whereby every foreign exchange dealer was transferred after 5-7 years.

In case banks wanted to extend the tenure of dealers, they had to apply to the RBI for approval. Public sector banks anyway follow a rotation policy every three years.

Pradip Pain, chief executive, Foreign Exchange Dealers Association of India (FEDAI), said "This is further delegation to the banks regarding these appointments"