Money & Banking

Need to pay market compensation for PSU bank board members: Rajan

K R Srivats New Delhi | Updated on January 19, 2018 Published on January 31, 2016

"When thousands of crore can be diverted by a bad board decision, should we not ensure we have adequate integrity and talent on bank boards?", RBI Governor, Raghuram Rajan asks.

Public sector banks' board members need to be paid market compensation if decent talent is to be attracted into the boards of such institutions, RBI Governor Raghuram Rajan has said.

"Otherwise, we risk attracting an unwieldy mix of the truly patriotic and the truly unscrupulous, with the latter intending to profit by their board position," Rajan had said in his C. D. Deshmukh Lecture in the capital on Friday.

"When thousands of crore can be diverted by a bad board decision, should we not ensure we have adequate integrity and talent on bank boards?", he asked.

Rajan also said that more decisions need to be decentralised from the Government to the PSU bank boards, once they have been fully professionalised.

The RBI Governor raised several questions - -that remained unanswered till date-- around functioning of bank boards and their autonomy.

For instance, should boards not determine strategy as well as the appointment or renewal of their chief executive? What about their executive directors? Can Bank boards have more freedom in choosing these? Can boards be given the freedom to set compensation structures and performance measures for their senior executives, including long-term stock options?

"If we want to address the concern that many public sector banks have identical strategies and are competing for the same pie, we have to allow the boards more freedom to differentiate their banks", Rajan said.

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Published on January 31, 2016
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