Banks Board Bureau: Old wine in a new bottle?

The Government set up Banks Board Bureau to improve the governance of public sector banks but the problem of bad loans, raising capital, and an overhaul of the banking sector cannot be done by merely asking the bureau to select bankers for top jobs.

About Banks Board Bureau

• The bureau was announced by the Union Government in August 2015 as part of seven point Indradhanush Mission to revamp the PSBs.
• BBB will be a super authority (Autonomous Body) of eminent professionals and officials for public sector banks (PSBs). It will replace the Appointments Board of Government.
• It will give recommendations for appointment of full-time Directors as well as non-Executive Chairman of PSBs.
• It will give advice to PSBs in developing differentiated strategies for raising funds through innovative financial methods and instruments and to deal with issues of stressed assets.
• It will also guide banks on mergers and consolidations and also ways to address the bad loans problem among other issues

Composition of the Banks Board Bureau

• Vinod Rai, a former comptroller and auditor general of India, is the chairman of the bureau.
• Its members include Anil K. Khandelwal, a former chairman of Bank of Baroda.
• H.N. Sinor, a former joint managing director of ICICI Bank Ltd.
• Roopa Kudva, a former managing director of rating company Crisil Ltd
• Then, there are three ex officio members—
  
  • R. Gandhi, a deputy governor of the RBI
  • Anjuly Chib Duggal, secretary, department of financial services, in the ministry of finance; Ameising Luikham, secretary, department of public enterprises.

Why Government wants Banks Board Bureau

• Government wants BBB to restructure business strategy of PSBs and also suggest way forward for their consolidation and merger with other banks as they are grappling with a huge problem of bad loans and high collective gross NPAs (Non-Performing Assets).
• Saddled with a large pile of bad assets, public sector banks need huge amount of capital.
• They also need to focus on sharpening efficiency and strengthening corporate governance.

How will the board help banks in developing strategies and raising capital?

• If there is no change in the constitution of the board and the bureau does not have any say in the selection of independent directors, it will be difficult to help these banks develop strategies and raise capital as many directors on the boards of various banks neither understand strategy nor do they lend credibility to their institutions.

Inception of BBB

• A committee set up by the RBI to review the governance of bank boards, headed by former chairman and managing director of Axis Bank Ltd P.J. Nayak, in May 2014 had suggested the formation of the bureau as a first stage in a three-phase process to empower the boards of public sector banks.
• In the run-up to the incorporation of a Bank Investment Company as an intermediate holding company for these banks, the bureau would advise on all board appointments, including the whole-time directors and the top bank management, to ''professionalize and depoliticize'' the appointment process. the panel had recommended.

BBB is meant to be a temporary provision, until Bank Investment Company is set up.

• The government has maintained that BBB is the first step towards a holding company for the government's stakes in the public sector banks and facilitate consolidation in the sector.
• According to P.J.Nayak Committee, the members of the bureau would have a tenure of three years or until powers are passed on to the investment company, whichever is shorter, and their remuneration would at least be on a par with the senior bank chiefs.

Why it is temporary?

• The investment company can be set up only after legislative changes. And it is a time-consuming activity (considering the recent trend in the way of functioning of the Parliament)

According to the author, BBB is a Old wine in a new Bottle. How?

• The government has done nothing, but has replaced the earlier appointments committee with the bureau.
• As there is no change in its constituents: An RBI deputy governor, two bureaucrats and four external experts—Rai, Khandelwal, Sinor and Kudva.

What should be done?

• It will not be easy to raise capital unless the government plans to overhaul the way public sector banks operate and this cannot be done by merely asking the bureau to select bankers for the top jobs.
• The government must clarify whether it is an intermediate step towards setting up the investment company.
• And if it is, then the scope of work must be widened to include the appointment of independent directors of the board, as envisaged by the Nayak committee.
• It also must look at the tenure of the managing director and the chief executive and the compensation of senior bankers, among other things. Finally, the process of appointment must also change.