industry

PSBs can't push people of choice on their boards


MUMBAI: Public sector banks (PSBs) will not be able to manoeuvre people of their choice into board positions with the Reserve Bank of India (RBI) tightening fit and proper guidelines for the position of elected directors.

The central bank on Friday came out with new master directions on fit and proper guidelines for elected directors on the board of PSBs. Elected representatives such as members of Parliament, or state legislature or municipal corporation or local bodies cannot be shareholder representatives on bank boards.

The rules explicitly bar board members of the RBI or any bank, financial institution, insurance company or bank holding company. The new rule also requires that the candidate should not have served on the board of a bank, financial institution or insurance company for six years. Individuals who are connected with hire purchasing, financing, money lending, investment, leasing or para banking activity are also not considered eligible, as also are stock brokers.

Shareholders of PSU banks are required to elect two to three directors, depending on the level of public shareholding. Although there are directors by investors, these board members have typically been chartered accountants or other professionals with business contacts with the banks.

To keep out political appointees, RBI requires all PSBs to have a nomination and remuneration committee (NRC) with at least three non-executive directors. Of these, half should be independent and should include at least one member from the risk management committee of the board to determine the ‘fit and proper’ status of candidates for the board.





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