industry

PSB heads told to reform boards


NEW DELHI: The Department of Financial Services has asked heads of all state-run banks to initiate the process of reforming their boards in line with governance changes announced by finance minister Nirmala Sitharaman on Friday as part of the mega banking reform package.

“With a view to institutionalise accountability for observance of approved risk appetite, the bank may give the risk committee of its board a mandate to periodically review adherence to the risk appetite framework of the bank and to fix accountability in the event of breach of approved risk appetite,” the Financial Services Department said in a letter sent to state-run banks, seen by ET.

The letter asked the banks to form a risk management committee, and to combine the nomination and remuneration committees.

Sitharaman had on Friday announced a slew of measures including consolidation of 10 state-owned lenders into four that seek to change the banking landscape. Consolidation will be accompanied with significant governance reforms.

She said the management will decide on the appraisal of top officials, instead of a single person. The management will be accountable towards to the board of the PSBs, by way of the board appraising the general manager and above ranks, including the managing director. As part of the reforms, she also said banks will be allowed to hire chief risk operators at market-linked compensation, and were not bound to the government-allocated salaries.

The government also allowed bank boards to decide individual development plans for senior executive positions to ensure a smooth transition when the senior executive leaves or retires. The risk management committee will be governed as per a Risk Appetite Framework. The framework will consist of risk limits for the respective banks, policies and procedures for material as well as reputational risks, and clearly defining the committee members’ roles.





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