In a strong pitch for phasing out the government role in top-level appointments at public sector banks, RBI Governor Raghuram Rajan today suggested empowering their boards to take all major governance decisions freely without having multiple "constituencies to satisfy".
Suggesting a major reduction in government and regulatory oversight of public sector banks (PSBs), including by RBI itself, the outgoing Governor also proposed withdrawing the central bank nominees from their boards.
"Today, a variety of authorities - Parliament, the Department of Financial Services, the Bank Board Bureau, the board of the bank, the vigilance authorities, and of course various regulators and supervisors including the RBI - monitor the performance of the public sector banks.
"With so many overlapping constituencies to satisfy, it is a wonder that bank management has time to devote to the management of the bank," he said.
Rajan also stressed on the need to streamline and reduce the overlaps between the jurisdictions of the authorities, while specifying "clear triggers or situations" where one authority's oversight is invoked.
He said agencies like, CAG and CVC, should get involved only in extraordinary situations where there is evidence of malfeasance, and not when legitimate business judgment has gone wrong.
Rajan, who has often been seen during his three-year tenure as central bank governor ending next month, as being on the opposite side of debate vis-a-vis the government on various issues, said these suggestions should be viewed as opening a discussion rather than formal views of RBI.
For the Finance Ministry's Department of Financial Services, the nodal department for banking sector, Rajan favoured programme-specific roles (such as for Jan Dhan scheme) as also coordinating and developmental roles.
On RBI, he said, it would perform a purely regulatory role and withdraw its representatives on bank boards, while adding this will require legislative change.
"Over time, RBI should also empower boards more, for instance, offering broad guidelines on compensation to boards but not requiring every top compensation package be approved," he said.
In the interim, till the bank boards are professionalised, he favoured the mandate for this to be vested with the fledgling Bank Board Bureau (BBB) so that it can help improve the governance and management structures at the public sector banks by allowing it to fully handle the appointments.
The comments assume significance in the wake of PSBs facing a huge burden of bad loans and amid calls from several quarters for professionalising their boards.
"Though the most pressing task for public sector banks is to clean up their balance sheets, a process which is well underway, a parallel task is to improve their governance and management," Rajan said here at a banking conference and called for allowing the BBB to handle entire process of top management appointment.
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