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The finance ministry has requested the Financial Services Institutions Bureau (FSIB) to fill up the vacant posts of non-executive chairman posts in the public sector banks (PSBs) to improve bank governance and enhance investors’ protection.
"FSIB is working on the request, and we are expecting positive developments on the issue in the coming months. The department of financial services is aware of the problem and is expecting that most of the vacancies will be filled by the end of this financial year," a senior finance ministry official said.
UCO Bank, Bank of Maharashtra, Bank of India, Indian Overseas Bank, Indian Bank, and Central Bank of India do not have a non-executive chairman.
In November last year, the Centre appointed non-executive chairman on the boards of Canara Bank, Punjab National Bank, Union Bank of India, and Punjab & Sind Bank.
The issue of vacant chairman positions in PSBs was raised in May during the Reserve Bank of India (RBI) governor’s interaction with the board members of PSBs in New Delhi.
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A senior RBI official told Business Standard that when there is a division on the board on any policy, the chairman plays the important role of making the decision in the larger interest of the bank's governance.
"The chairman also highlights the problems if management is not following certain governance guidelines despite not taking part in the day-to-day operations of the bank," he added.
The salary of the chairman of the PSBs is based on the number of sittings on the board.
The RBI official highlighted that the remuneration paid to them is less considering the time, responsibilities, and extensive knowledge of subjects that are needed for them to fulfil their duties on the board.
Addressing the conference of directors of private banks in Mumbai in May, RBI Governor Shaktikanta Das compared the role of a bank chairperson to that of the captain of a ship. "For the chairperson to be able to navigate the board discussions and functions in the right direction, he/she should possess the requisite experience, competencies, and personal qualities," he added.
During the New Delhi meeting with the RBI, public sector bankers also raised the issue of compensation for directors, particularly MDs and CEOs and highlighted the fact that the remuneration of state-owned bank chiefs is less than that of their private-sector counterparts.
The finance ministry official quoted earlier said that there was currently no proposal under consideration to enhance the salaries of MDs and CEOs of PSBs. "They work in the public interest and have the rank equivalent to additional secretary of the department under the Centre," the official added.
Shriram Subramanian, founder and MD of advisory firm InGovern, said the absence of non-executive chairmen in PSBs had no immediate impact on banks performance, safety, or profitability because that was for the executive team to execute under the direction of the board.
Finance Minister Nirmala Sitharaman on Saturday told PSBs to follow best corporate governance practices, adhere to regulatory norms, ensure prudent liquidity management, and continue to focus on having robust asset-liability and risk management.
