RBI setup this Committee to review the governance of Board of Banks in India. (Published in May 2014)
The banking sector in India is dominated by public-sector banks (PSBs) with government being the majority stake holder in them. In recent years, the Public Sector banks have been suffering with multiple problems of non-performing assets (NPAs), large over-dues; competition, performance, political pressures and so on.
In this context, the former RBI governor Raghuram Rajan had constituted the P.J. Nayak committee In January 2014 under Shri P.J Nayak, former Chairman and CEO, Axis Bank, and Former Country Head, Morgan Stanley India.
The committee found that the key “governance” issues include the composition and functioning of the board; the key management issue is selection of the CEO; and the key operational issues are handling the bad loans and infusion of capital in banks. The key recommendations are as follows:
The PSBs must have independent directors
Since the private banks do better when it comes to independent directors, the public sector banks also must have “independent directors”. These independent directors should be elected by the shareholders.
The Government share should come below 50%
To reduce the government’s shareholding in banks to less than 50 per cent in order to provide a level playing field to public and private sector banks.
BBB should be free of government interference
The committee recommended that the Bank Board Bureau (BBB), which will decide on management and board-level appointments in public sector banks should only comprise of senior bankers, with no government involvement in decision making.