Apropos the editorial "Banking on governance" (May 15), the sharp deterioration in the asset quality and profitability of public sector banks (PSBs) is attributable, among other things, to the weak governance system inherent in the ownership structure of the banks and ineffective control exercised by the board of directors over the credit-origination process. Most of the members on the board are not well equipped to see through the weakness in credit proposals. The non-executive board members, including the independent directors, have no effective mechanism to independently cross-check the veracity of the management story presented to them. Executive directors and CEOs are more subservient to the dictates of the government, even if it involves compromising the regulatory guidelines.
The government's divestment in PSBs may not happen due to political compulsions. However, there is a need to end the era of political banking that has been flourishing since the nationalisation of banks. The system of appointing CEOs and directors on the boards of listed PSBs by the government needs to be brought on a par with that of private banking companies. The government, as the majority shareholder, may exercise its control over PSBs through the board, instead of meddling directly in the management.
Biplab Chakraborty Kolkata
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