PSU banks for fairness in board appointments

Public sector banks want the government to cede its powers on appointing independent directors to on their boards. They suggest that the government should set up an autonomous body for independent director appointments as the current system mostly leads to ruling party activists being awarded berths on their boards.

The demand has gained strength ever since the Punjab & Sind Bank's boardroom divide became public. The management of the bank, led by its chairman RP Singh and the five "independent" members on the bank's board, have been accusing each other of wrong-doing.

The government is likely to partly concede the immediate demand of public sector banks to allow them to appoint the nominees of the government and the Reserve Bank of India (RBI) to their management committees. A notification permitting banks to have RBI nominee-directors on their management committees is expected soon.

Meanwhile, public sector bank CEOs are likely to discuss the issue of the appointment of "politician" independent directors under the aegis of the Indian Banks' Association (IBA). The CEOs were to meet ahead of the IBA's managing committee meeting to be held in July, banking sources said.

"Most of the independent directors are political appointees who can hardly contribute anything to the management of the banks. Their interference in the functioning of banks often acts as a drag," said the chairman of a public sector bank, who did not want to be identified.

Independent directors were required to chair various board committees but most independent directors in public sector banks were in no way qualified to perform the task, another banker said.

In February this year, the government had amended the regulations governing the constitution of management committees of the boards of public sector banks, barring RBI and government nominee directors from being members of the committees. Punjab & Sind Bank had, in fact, written a letter to the finance ministry asking for permission to include RBI and government nominee directors in its management committee.

"When we do not have any professionally qualified (part-time) directors on the board, the removal of RBI/government nominees from the managing committee has proved to be counter-productive," the letter from Punjab & Sind Bank said. A senior banker said in the absence of either the RBI or the government nominee on the management committees of public sector banks, the "politician" directors had a "field day" at meetings that are called for taking crucial decisions.

Public sector banks are also demanding that the autonomous body be empowered to put in place and implement a code of conduct for board members. "This is one step that will go a long way in establishing accountability," the chairman of a south-based bank said.

"Independent directors enjoy themselves at the bank's expense. We have had cases where independent directors have presented huge bills from five-star hotels for services like laundry and liquor consumed," he added.

A professional approach to appointing independent directors is expected to help the public sector banks have members with relevant skills on their boards.