RBI is of the view that the main role of any director on the bank's Boards, including nominee directors, is to ensure that the bank is efficiently and professionally managed
Reserve Bank of India (RBI) has made a representation to the government requesting that the central bank's nominees should not to be on bank Boards.
RBI, in the written statement to the Parliamentary Committee on Finance, said it was of the view that its nominee directors should distance themselves from the management committee of the Board, which takes credit decisions to avoid any conflict of interest. RBI was responding to queries on governance issues in banks like ICICI Bank and frauds in Punjab National Bank.
Meanwhile RBI governor Urjit Patel faced the Parliamentary Committee on Finance in Delhi, where he was grilled on the cash shortage, NPA situation and also frauds being committed in the banking system.. The governor told the house panel that "RBI is trying to do its best to resolve most of these issues".
The panel members asked the governor why there is an acute shortage of cash in the banking system while the currency in circulation is going up. The questions were asked, but the governor is yet to reply to the questions.
RBI is of the view that the main role of any director on the bank's Boards, including nominee directors, is to ensure that the bank is efficiently and professionally managed, and that the proposal coming before the Board is consistent with the normal banking practices. It added in a written statement to the panel that separation of the post of the chairman from that of the chief executive officer (CEO) in nationalised banks has been done with a view to strengthen the independence of the Board and enhancing its oversight over the management which also includes the CEO.
RBI has made a representation to the government to amend the Banking Regulation Act, 1949, so that it gets more teeth to take regulatory action on the government owned banks in an ownership neutral basis. If the government agrees to amend the Act then RBI will have the power to change managements, supersede bank Boards and amalgamate banks among other things.
RBI said that State bank of India and other public sector banks were formed are not companies but corporations through statutes. "They are therefore not banking companies and the BR Act does not apply to the PSBs in full," RBI told the panel.
The central bank said it lacks the powers to remove the chairman and managing director of the banks, grant licences and impose conditions supersede the bank Board or wind up or amalgamate banks.
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