Government plans slew of reforms to overhaul PSU banks

The objective of the reforms is to initiate a standard operating environment on governance in state-run lenders, in line with the suggestions made by the Companies Act

New Delhi: Before long, the government will set off a series of corporate governance reforms in public sector banks (PSBs), such as stronger board-level committees, robust performance management and a more diversified board structure system for employees. The objective of these reforms is to initiate a standard operating environment on governance in state-run lenders, along the lines suggested by the Companies Act, 2013, a Finance Ministry official said.

"There have been some suggestions made by the Banks Board Bureau (BBB). We are also in discussion with the Reserve Bank of India (RBI) to adopt best practices from both private banks and global financial institutions. We need a system which should also remunerate non-revenue generating functions' staff," the official told The Economic Times.

A complete overhaul

The BBB proposed further professionalising the boards of PSBs by roping in experts on information technology, human resource management and in risk management.

"One of the suggestions is to reconstitute the management committee of the board which takes decisions on large value loans. Then we are also looking to strengthen the risk-management committee, which should be given a mandate to set a definite matrix for various credit underwriting activities," the official added.

'A more focussed performance management system in the offing'

The BBB, in its recommendations, has also suggested that a nomination and remuneration committee (NRC) should be set up in banks, in alignment with the Companies Act, 2013.

The government had directed state-run lenders to draw up a board-approved strategic vision consistent with their risk-appetite framework, as part of its reforms agenda for PSBs, termed EASE (Enhanced Access and Service Excellence). In order to fast-track the promotion of top performers, the lenders were also advised to create more focused performance management systems (PMS).