Bank Boards Bureau

Banks Board Bureau

The bureau was announced last August as part of the seven-point Indradhanush plan to revamp public sector banks.
 The bureau will have three ex-officio members and three expert members, in addition to the Chairman.
 Former Comptroller and Auditor-General of India Vinod Rai will be its first Chairman
Function and impacts
 To recommend appointments to leadership positions and boards in public sector banks
 To advise on ways for raising funds and mergers and acquisitions to the lenders.
 It will play a critical role in reforming the troubled public sector banks by improving governance.
 With professionalization of appointment in leadership position, the BBB is first step towards Bank Investment Company as recommended by P J Nayak committee

What is Bank Board Bureau:

It is a body that will select top executives of state-run banks and help lenders raise capital and develop business strategies.

What were the need of setting such body:

With a view to improve the governance of public sector banks, the government had decided to set up an autonomous Bank Board Bureau. The bureau will recommend for selection the heads of public sector banks and financial institutions and help banks in developing strategies and capital raising plans

Structure of BBB:

The BBB will comprise of a Chairman and six more members of which three will be officials and three experts (of which two would necessarily be from the banking sector). The Search Committee for members of the BBB would comprise of the Governor, RBI and Secretary (FS) and Secretary (DoPT) as members.

Detail of BBB
The announcement of the Bank Board Bureau (BBB) was made in 2015-16 Budget Speech.
The BBB will be a body of eminent professionals and officials, which will replace the Appointments Board for appointment of Whole-time Directors as well as non-Executive Chairman of PSBs.
They will also constantly engage with the Board of Directors of all the PSBs to formulate appropriate strategies for their growth and development.
The bureau will replace the board for appointment of whole time directors as well as nonexecutive chairman of public sector banks (PSBs). It will also engage with boards of directors of all PSBs to formulate appropriate strategies for their growth and development
This is a part time job post and there is no compensation to hold this post

Why this was a good idea?

The bureau has been set up at a time when public sector banks are grappling with a huge problem of bad loans with their collective gross NPAs (Non Performing Assets) approaching Rs. 4 lakh crore level. Saddled with a large pile of bad assets, public sector banks need dollops of capital. They also need to focus on sharpening efficiency and strengthening corporate governance. The Bureau is mandated to play a critical role in reforming the troubled public sector banks.

What else needs to be done now?

• Create a holding company to manage the government’s stakes in the public sector banks and facilitate consolidation in the sector.
• Open up the banking sector further and explore options of allowing different types of banks to set up shops.
• The bureau should also have a say in the selection of independent directors of boards without which 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.

Challenges:

The investment company can be set up only after legislative changes. For instance, the Bank Nationalisation Acts of 1970 and 1980 and the SBI Act and the SBI (Subsidiary Banks) Act need to be repealed and all banks need to be incorporated under the Companies Act ahead of this. This is a long-drawn process.

Conclusion:

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.