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Sarbajeet K. Sen

The freedom on branch opening will come as major relief to banks since, currently, they have to hold a valid licence from the RBI before expanding their network.

New Delhi , Jan. 23

A FRESH autonomy package for public sector banks is in the works, this time around seeking to provide a high degree of freedom to the board of directors on operational matters.

The corporate governance-linked package could include greater freedom to the boards in opening of branches, restructuring of operations including closure of loss-making businesses and opening of new lines of business.

This will mean that the banks will be able to go ahead on all these parameters without needing regulatory or governmental approval beforehand. "We are considering providing greater autonomy to the public sector banks. Though almost all of them are strong entities now, the exercise of the new autonomy would depend on the level of good corporate governance practices adopted by each of them," a top Finance Ministry official said.

However, though there will not be a need to seek prior approval from the authorities for opening new lines of business, the ambit of new businesses that a bank will be allowed to enter will continue to be restricted to those permitted under the current legal and regulatory framework.

The freedom on branch opening will come as major relief to banks since, currently, they have to hold a valid licence from the RBI before expanding their network.

If the autonomy package finally sees the light of the day, the bank boards will be allowed to go ahead with their branch opening plans and inform the RBI subsequently.

Officials said the corporate governance standards against which the banks will be assessed for being allowed to exercise their new freedom will be the ones recommended by the Dr A.S. Ganguly committee.

The panel constituted by the RBI had suggested several measures for a more effective role of the boards of banks.

The committee's suggestions included "fit and proper" norms for nominating directors, induction of more professionals on boards, defining the role of directors and providing complete information to the board including the bank's exposure to the stock markets and other `sensitive' sectors such as real estate.

In fact, the RBI Governor, Dr Y.V. Reddy, had also recently hinted at a fresh round of corporate governance-linked autonomy package for PSU banks.

Addressing the first Bankers' Conference, the Governor had said "Improved corporate governance practice would also provide an opportunity to accord greater freedom to the banks' boards and (allow the RBI) to move away from micro regulation to macro management."

Granting of autonomy to PSU banks from Governmental and regulatory shackles started way back in 1997 when the first such package was announced.

The package had proposed that stronger banks meeting the criteria set on NPAs, capital adequacy, profit record and net owned funds would be granted autonomy to the bank boards on practically several administrative issues such as creation of new posts, overseas posting and promotion of officers.

Subsequently, the Government had also abolished the Banking Services Recruitment Board, allowing banks to have their own independent recruitment policies.

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