Has market regulator SEBI been put in a spot by the recent Central Bureau of Investigation move in naming BSE Chairman S Ravi (among other IDBI Bank officials) in the FIR relating to the IDBI Bank loan fraud case? One would tend to think so given that a ticklish situation has been created where a person “nominated” by SEBI as a “public interest director” in a listed stock exchange and becoming its Chairman has now been booked by a government investigation agency (albeit in a different case altogether).

Immediate poser

Governance experts feel that the new situation may compel SEBI to both withdraw this incumbent public interest director in the BSE and review the norms for nominating “public interest director” in market infrastructure institutions such as bourses.

The other troubling issue now for SEBI is that both S Ravi and MS Raghavan, former Chairman and Managing Director of IDBI Bank, formed part of SEBI’s Takeover Panel. Both have been named in the CBI’s FIR in the IDBI Bank loan fraud case. Ravi is an existing independent director in IDBI Bank.

The latest situation raises the larger question of how these so-called “public interest directors” are chosen/selected by the market regulator and whether due diligence is indeed undertaken before such nominations? Are they put through the “fit and proper” test that is mandated for coveted posts? Was the “fit and proper” criteria followed in the instant case is also a question that needs to be answered, say governance experts.

Searching questions

An important issue for SEBI in recent decades has been to what extent it should play a role in the internal governance of a bourse and whether it should stay away from it.

What may require a review is the gravitas that public interest directors bring to the governance of bourses.

The main point is that the latest CBI move has led to the need for more debate and transparency in the role, identification/ selection and functioning of public interest directors in MIIs (market infrastructure institutions), say governance experts.

BSE’s stance

Meanwhile, the BSE has in a communiqué to the NSE on Monday taken the stance that the issue named in the FIR filed by the CBI is “not related to the BSE or his Chairmanship in the BSE or its workings in any way”.