Chimera of banking reforms

In the last few months, two reshuffles of government banks’ managing directors (MDs) have taken place. On March 19, the reshuffle of MDs was between IDBI Bank and Indian Bank, and on May 5, it was between Punjab National Bank (PNB), Allahabad Bank, Bank of India and Syndicate Bank. A major casualty in all these reshufflings has been the Bank Board Bureau (BBB) and the reputation of its chairman, Vinod Rai, as a fearless crusader.

The BBB, a brainchild of the PJ Nayak Committee — which was formed in May 2014 to review the governance of bank boards in India — recommended the setting up of a permanent bureau of eminent individuals to professionalise the appointment of whole-time directors, including managing and executive directors, in government banks.

Consequently, the BBB was established as a part-time body and commenced functioning on April 1, 2016, as an autonomous recommendatory board. The BBB currently consists of seven members; chaired by Vinod Rai, former Comptroller and Auditor General of India (2008-2013), Anjuly Chibb Duggal, Secretary, Department of Financial Services, Seema Bahugana, Secretary, Department of Public Enterprises, NS Viswanathan, Deputy Governor, Reserve Bank of India, Anil Khandelwal, former Chairman and MD of Bank of Baroda, and Roopa Kudva, former CEO, CRISIL.

Reportedly, neither did the BBB recommend the changes in CEOs between the banks nor were they informed by the government prior to the changes being announced. By setting up the BBB, the government appears to have recognised that an independent autonomous body was required to recommend appointments to whole-time directors and non-executive chairpersons on banks. But, by bypassing the BBB in these controversial changes involving the large banks — IDBI, Punjab National Bank and Bank of India — the government has sidelined this high-powered body and effectively imposed the earlier system when the government made all the appointments.

The BBB was created as a highly visible, supposedly autonomous body, quasi-independent of the government to recommend suitable, experienced individuals as executive board directors in government banks. The original intent of the PJ Nayak Committee was to exclude government officials from the BBB, but the inclusion of two secretaries and an RBI Deputy Governor thwarted such a move. However, in the power-conscious bureaucracy, the dilution of recommending critical appointments in banks, an exclusive preserve of the government, was not taken kindly, culminating in exclusion of the BBB in these critical decisions of swapping bank CEOs.

There were high expectations that the appointment of Vinod Rai as the BBB chairman, with his larger-than-life image as an anti-corruption warrior and former Banking Secretary, would bring transparency in the previously opaque selection of whole-time directors and also the appointment of suitable candidates based on merit. However, it appears increasingly likely that the post was merely a reward for Rai’s embarrassing disclosures of corruption as the CAG in the earlier United Progressive Alliance (UPA) government. As BBB Chairman, he has been outspoken on subjects outside the BBB’s remit, such as writing to the Finance Minister on the resolution of non-performing assets and on the merging of two Mumbai-based government banks. In stark contrast, the voluble Rai has been strangely silent when the BBB’s recommendations on appointments have been ignored and when it has been deliberately bypassed by the government in the shifting of large bank CEOs — this, when recommending CEO appointments is a core function of the BBB.

The recent controversial appointments by the government also reveal its ham-handedness. PNB, the largest domestic nationalised bank, since 2000 has had a history of senior bank officials (who were already CMDs in smaller banks) being appointed as its Chairman and Managing Director/CEO. However, in the recent change, Sunil Mehta has been appointed as PNB CEO. Mehta had earlier been appointed Executive Director, Corporation Bank, on January 22, 2016. Prior to that, he was a General Manager (GM) at Allahabad Bank, a medium-size bank. Both the PNB’s current Executive Directors have been in their posts for two to three years and are senior in experience and hierarchy to their new CEO.

The systemic erosion of public institutions indicates that Vinod Rai, a roaring tiger, has been reduced to a caged parrot, and the BBB’s expiry date is fast approaching. Perhaps the BCCI will turn out to be a more absorbing engagement than the nation’s public sector banks.

The author is a banking and macroeconomy research analyst. Views expressed are personal.