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The Finance Ministry is likely to move a Bill in the Winter Session of Parliament to amend the Banking Regulation Act, 1949, for splitting the post of Chairman and Managing Director in banks.
The move aims at ushering in better governance and greater transparency in the public sector banking system. A senior Finance Ministry official said the Cabinet is expected to consider the amendments soon, after which a Bill would be prepared. This is the second key development in the banking sector after the ‘work in progress’ for a new Monetary Policy Framework Agreement.
Finance Ministry officials said once the proposals for splitting the top post are in place, new opportunities may open up for retired bureaucrats to be appointed as Chairman, while the CEO or Managing Director would come from the banking industry. The proposal to split the post comes at a time when serious governance issues are being raised following the Syndicate Bank bribery case, leading to the termination of its CMD, SK Jain.
At present, private sector banks have separate Chairmen and Chief Executive Officers. But, among public sector banks, only State Bank of India has an Executive Chairman and four managing directors. SBI’s five associates are led by managing directors, while the SBI Chairman heads all these. Public sector banks, such as Punjab National Bank, Bank of Baroda (headless at present) and Union Bank, among others, have a single post of CMD. After the CMD, large banks have three executive directors, while the others have two.
The move aims at ushering in better governance and greater transparency in the public sector banking system. A senior Finance Ministry official said the Cabinet is expected to consider the amendments soon, after which a Bill would be prepared. This is the second key development in the banking sector after the ‘work in progress’ for a new Monetary Policy Framework Agreement.
Finance Ministry officials said once the proposals for splitting the top post are in place, new opportunities may open up for retired bureaucrats to be appointed as Chairman, while the CEO or Managing Director would come from the banking industry. The proposal to split the post comes at a time when serious governance issues are being raised following the Syndicate Bank bribery case, leading to the termination of its CMD, SK Jain.
At present, private sector banks have separate Chairmen and Chief Executive Officers. But, among public sector banks, only State Bank of India has an Executive Chairman and four managing directors. SBI’s five associates are led by managing directors, while the SBI Chairman heads all these. Public sector banks, such as Punjab National Bank, Bank of Baroda (headless at present) and Union Bank, among others, have a single post of CMD. After the CMD, large banks have three executive directors, while the others have two.
Panels’ recommendations
Two Reserve Bank of India panels, headed by AS Ganguly in 2002 and PJ Nayak in 2014, had recommended separation of the post. The Ganguly-led panel had suggested that it would be desirable to separate the office of CMD in respect of large public sector banks.
“This functional separation will bring about more focus on strategy and vision as also the needed thrust in the operational functioning of the top management of the bank,” it said.
The Nayak Committee had suggested separation of the positions of bank Chairman and CEO. The Chairman should be non-executive, it said, suggesting a minimum five-year tenure for the Chairman and three years for Executive Directors.
However, whether the Finance Ministry will make a provision of a minimum tenure for key officials post-bifurcation of the CMD’s post, remains to be seen.
Source : The Hindu
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