The Hindu Business Line : Directed banking

Bankers are not raising a toast to the changes wrought by a clutch of banking Bills, as government banks will continue to be much the same. In packing bank boards with government and Reserve Bank of India nominees, New Delhi may have bypassed the healthy convention of ring-fencing ownership from management. The Finance Ministry and the RBI will continue to revel in their two-in-one role while reducing the public stakeholders, controlling more than 40 per cent of the equity in some banks, to ball boys.

Till now, the RBI has had one nominee on government bank boards (with none in the private outfits) and Dr Bimal Jalan, as RBI Governor, had publicly argued for keeping away central bank officials to avoid any "conflict of interest." For him, the RBI could not be a regulator and also a board member privy to management decisions. In line with this premise, Dr Jalan had favoured the central bank shedding its majority stake in State Bank of India and all such entities. Instead, the Union Cabinet has cleared a proposal to cut the RBI stake in SBI from 55 per cent to 51 per cent. In today's political milieu, Dr Jalan seems a bit dated. Public sector banks will probably see three executive directors providing back-up to the chairman and managing director, or a variant, as bankers are unsure of details. This can help reduce the work load of bank chiefs, besides making upwardly mobile the general managers, who usually become executive directors. There is little camaraderie now at the top with the CMD and the executive director drawn from different banks. Besides the few aberrations, SBI is the lone bank where a probationary officer can head the bank after some 30 years of service.

One can spot a dash of black humour in the legal provision allowing the government to scrap public sector bank boards. The Finance Minister, Mr P. Chidambaram, has said that, "We are not going to supersede banks on a whim. The RBI will be involved." Does that not amount to an expression of disbelief in the Finance Ministry and the RBI, which in the first instance hold tickets in perpetuity for seats in the dress circle? To start with, the bank boards and the professional management are selected by the Finance Ministry and the RBI; there are up to three RBI nominees and more from the Ministry on the boards. Yet, if the bank sinks, in steps an administrator to run the show. Through the 1990s, taxpayers had to put back about Rs 30,000 crore in government banks to protect their deposits when the outfits were run entirely by the Finance Ministry and the RBI. For the financial system, the proposed alterations are much of a muchness.

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