Govt sets up Banks Board Bureau to improve governance at PSU banks

01 Mar 2016


A day before the presentation of the Union Budget for 2016-17, the government on Sunday announced the constitution of an autonomous Banks Board Bureau (BBB), with Vinod Rai, former Comptroller and Auditor General (CAG) of India, as its chairman, to improve governance at public sector banks.

Prime Minister Narendra Modi approved the constitution of the Bank Board Bureau, with a view to reform the appointment process for top-level posts and improve the finances of public sector banks.

The bureau will recommend candidates for selection of heads of public sector banks and financial institutions and help banks in developing strategies and capital raising plans.

The Banks Board Bureau will have three ex-officio members and three expert members in addition to chairman. All the members and the chairman will be part time.

The BBB, which will start functioning from 1 April 2016, has besides chairman Vinod Rai, secretaries of the departments of financial services, public enerprises and deputy governor of the Reserve Bank of India as ex-officio members and former CMD of Bank of Baroda Anil K Khandelwal, former joint MD of ICICI Bank HN Sinor and former MD and CEO of Crisil Rupa Kudwa as members.

Vinod Rai, former CAG, has been instrumental in bringing to light the loss due to spectrum allocation, estimated at Rs 1,70,000-crore under the UPA II government, the finance ministry said in a statement on Sunday.

Rai and the three external members will have a two-year tenure from the date of notification, or until further orders, the ministry said.

The BBB will be responsible for the search and selection of heads of public sector banks, and for wholetime directors and non-executive chairmen on the boards of PSU banks.

BBB will professionalise the selection for top posts at PSU banks and help improve commercial performance and governance process of state-owned banks by appointing the right candidates.

The decision comes in the backdrop of a severe deterioration in the performance of state-owned banks and a sharp increase in their non-performing assets over the past couple of years.
In the last three years, public sector banks have written off Rs1,14,000 crore, After writing off Rs53,100 crore in 2014-15, banks are expected to write off another Rs 52,227 crore this year. PSU banks' gross NPAs are expected to jump 31.48 per cent in the fiscal ending March 2016 - to Rs426,400 crore from Rs324,300 crore.

Last August, while announcing a reforms roadmap called Indradhanush for the PSU banks, the finance ministry had outlined the structure of the Bank Board Bureau. In his speech during the Union Budget 2015-16, finance minister Arun Jaitley had since proposed the setting up of an autonomous Bank Board Bureau to improve the governance of PSU banks.

The BBB, which will in due course turn into a bank investment holding company, would also help banks develop differentiated strategies and capital raising plans through innovative instruments.

State-owned banks also need Rs1,80,000 crore of capital by March 2019, out of which Rs1,10,000 crore has to come from the market, while the government has committed to provide Rs70,000 crore, as per the finance ministry's estimates.

In 2014,  a committee headed by former chairman of Axis Bank P J Nayak had, suggested the setting up of a bank board bureau, which would be later turned into a bank investment company. The bureau will replace the Appointments Board, which selects top officials for public sector banks.

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