Bank boards suffer from huge governance deficit: Chakrabarty
NEW DELHI, MARCH 21:
Indian banking system needs a clean up of governance especially at the bank board level, Reserve Bank of India Deputy Governor, K.C. Chakrabarty has said.
Highlighting various ills of Indian banking, Chakrabarty has called for adoption of rule-based regulations as against the largely discretionary policies being followed now.
“You need to take a call whether our system should be rule-based or principle based. But don’t keep it discretion based as is the case now. I have worked for 30 years in banking industry. In our country everything is discretion based”, Chakrabarty said at the 35{+t}{+h} Skoch Summit in the capital on Friday.
These remarks are significant as it came a day after news broke out that Chakrabarty had sought early retirement and was looking to demit office two months in advance to the earlier indicated end June date.
Financial inclusion
Chakrabarty slammed bank boards for the “big governance deficit”, highlighting that they have still not bought into the idea of financial inclusion as a business proposition.
Time has come for fixing accountability (in a transparent manner) to banks’ senior management and board so as to ensure adoption of financial inclusion.
“Bank boards do not consider financial inclusion as a viable business proposition. They don’t apply their mind how to make it viable. They also don’t agree that it (financial inclusion) has to be done in interest of society”.
Making bank board accept financial inclusion as a viable business proposition is the need of the hour, he said adding that “Otherwise our society will not survive”.
Weak governance
Chakrabarty said there was need to strengthen governance at the Bank Board level and pointed out that it was easy to accomplish in a democracy.
Also, there has to be transparent norms on how does one select a Bank Board, RBI Deputy Governor, what tenure should such a person get and what will be his responsibilities etc
Clean up needed
Bank boards are not always competent and they have not always understood the business they are in, pointed out Meghnad Desai, Professor Emeritus, London School of Economics.
A lot of bank failures happened with boards which thought they were good boards. “There is a need to clean up bank governance much more across the board and across the world than we do”, he added.
First of all, the politically involved appointments should be discontinued in Bank Boards. The Bank chief should be selected from outside area that too in a open selection method. The finance ministry to be trimmed off powers to appoint directors to the Bank boards and also in appointment of Chairman/Managing Directors and the Executive Directors of the Banks. The powers should be vested with a committee constisting of finance intellectuals along with RBI Governor. No politicians including the Finance Minister and Commerce Minister should find a place in the said Committee. And the top executives along with the Board Members should be fixed with responsibility if any bad loan arises in the particular bank and stern actions should be taken immediately just as done in the Western Countries like US, UK etc. Then only the Banking industry will survive in the coming future. Otherwise, the executives will be puppet to the Politicians who rule the country and put the blame upon the lower managements and the employees and escape from the punishments.
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