The Reserve Bank of India's (RBI) consultative group of directors of banks and financial institutions has recommended creating a pool of independent directors -- approved by the RBI -- to join various bank boards.
This is part of the recommendations made by the 12-member committee which reviewed the supervisory role of banks and financial institutions. The committee had its second meeting on Monday to deliberate on how to bring about corporate governance in the Indian banking industry.
The committee, headed by RBI director A S Ganguly, will submit its recommendations to the apex bank by the end of March.
The panel is looking at starting with a pool of around 200 directors, who would be ready to take on the responsibility as a board member of banks.
The concept of creating a pool of independent directors was first initiated by the Confederation of Indian Industry (CII).
The committee will also identify some dos and don'ts for the independent directors whereby they can be held responsible for their actions. It may also recommend additional remuneration over and above the sitting fees for directors.
In the US, independent directors are given commissions or stock options, which are two possibilities the committee is looking at, sources said.
Suitable compensation packages can only bring about good people to join the board, said directors of banks. "An independent director has to give time for meetings and they should be suitably compensated," said sources.
While this would not pose a problem for private sector banks, the present legislations do not permit public sector banks to give such additional packages. However, the committee is expected to identify the need for a change in the legislation regarding compensation in public sector banks.
The pool of directors approved by the regulator would include experts from fields of international finance, agriculture, infrastructure, information technology, small-scale industry, etc. All banks could use this pool while appointing independent directors. Appointments of directors on the boards of foreign banks would equally be facilitated through the setting up of this pool. It is mandatory for foreign banks to get RBI approval of their appointed directors.
Each bank has a nomination committee which recommends the appointment of independent directors. The final decision would then be taken by the board of directors. This would not be difficult in the case of private sector banks, which accepts decisions of the nomination committee. However, the consultative group recognises that in public sector banks, with the government being the major shareholder, acceptance of these recommendations of the nomination committee would require the government to have a more open mind.
THE RECOMMENDATIONS
* Create an expert talent pool of at least 200 independent directors
* Compensate them in the form stock options/commissions besides sitting fees
* Modify discrepancies in the various Acts
