Following the merger of Dena Bank and Vijaya Bank with Bank of Baroda (BoB), the government is now seeking to beef up the number of whole-time directors (WTDs) on the boards of large public sector banks (PSBs) into which other PSBs will get merged.
The government wants to have five WTDs — a Managing Director and Chief Executive Officer (MD and CEO) and four Executive Directors (EDs) — on the boards of large PSBs, whose balance sheets will grow bigger once other PSBs merge with them, going by the amendments proposed to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.
Currently, the government appoints four WTDs — an MD & CEO and three EDs — on the boards of large PSBs such as BoB, Punjab National Bank, Bank of India, Canara Bank, Union Bank of India and Central Bank of India.
Banking Companies Act
In accordance with the proposed amendment to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the clause “not more than five whole-time directors to be appointed by the Central Government after consultation with the Reserve Bank” will be incorporated.
Currently, the clause relating to the appointment of WTDs in PSBs reads as “not more than four whole-time directors to be appointed by the Central Government after consultation with the Reserve Bank.”
SBI-like model
According to BK Divakara, former Executive Director, Central Bank of India, the government may be intending to put in place a State Bank of India (SBI)-like board structure in order to help the consolidated PSBs efficiently manage their business. SBI, the country’s largest lender, has five WTDs — the Chairman and four Managing Directors — on its board.
Consolidation in the PSB space has been kick-started with the merger of Dena Bank and Vijaya Bank with BoB with effect from April 1, 2019. BoB currently has four WTDs — the MD & CEO and three EDs.
When the cabinet approved the amalgamation of Dena Bank and Vijaya Bank with BoB in early January 2019, the Finance Ministry said the consolidation among the three PSBs will help create a strong, globally-competitive bank with economies of scale and enable realisation of wide-ranging synergies. Leveraging of networks, low-cost deposits and subsidiaries of the three banks have the potential to yield significant synergies for positioning the consolidated entity for substantial rise in customer base, market reach, operational efficiency, wider bouquet of products and services, and improved access for customers, it added.
To strengthen governance at the Board level, the position of Chairman and Managing Director in PSBs was bifurcated into a non-executive Chairman and an MD & CEO during the Modi government’s first five-year tenure.
According to the Finance Ministry, a professional Banks Board Bureau has been created for arm’s length selection of non-executive Chairmen and whole-time directors.