Money & Banking

FinMin shows the way for smooth conduct of PSBs’ board business

KR Srivats New Delhi | Updated on January 28, 2021

Devises a go-around strategy when decisions are held up at board-level committees

The Finance Ministry has empowered Public Sector Banks’ (PSBs) boards to go ahead and act on the decisions that remained held up at various board-level committees due to the absence of quorum arising from vacancies or recusal by existing directors.

This move will facilitate the appointment of some categories of directors on boards. It will also facilitate the smooth conduct of business where quorum is not available in some of the committees like Nomination and Remuneration Committee, said sources in the banking industry.

The Department of Financial Services has introduced a special provision in the Nationalised Banks (Management and Miscellaneous Provisions) Scheme 1970, as well as a similar scheme introduced in the year 1980 (1970 and 1980 saw the nationalisation of several banks through enactment of Banking Companies (Acquisition and Transfer of Undertakings) Act).

This Finance Ministry move will give opportunities for several PSBs to fill vacancies, said a chief executive of a Public Sector Bank.

For instance, Punjab National Bank will, on the strength of this DFS move, look to rope in another director to its board, said SS Mallikarjuna Rao, MD and CEO. “We can now move forward in getting another director in a particular category,” he said.

In most PSB boards there are very few directors with vacancies pending for last few years. Now, this DFS move will help fill some vacancies even if the Nomination and Recruitment Committee (which by law has to be headed by an independent director) is not functional.

Approval of the NRC

For instance, one needs the approval of the NRC to be appointed as shareholder director in a bank. Where NRCs were not in place due to the absence of directors, shareholder directors were not getting appointed, another banker pointed out.

The DFS move will also come handy for those PSBs where the government holding is coming down due to capital raise via Qualified Institution Placements (QIPs) route. If the public shareholding goes above 16 per cent as a result of any QIP, then the board can have two shareholder directors (one shareholder director for every 16 per cent public shareholding). So, such additional shareholder director cannot get appointed if the bank concerned had no NRC, a public sector banker pointed out.

Srinath Sridharan, an independent markets commentator, told BusinessLine that the point that some of the bank board committees might have vacancies is a valid one.

“Where there are instances when the board committee members recuse for any reason, it would be appropriate to table the ‘reason for recusal’. This transparency would help with proactive governance standards,” he said

Published on January 28, 2021

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