Economy

KEY POINTS

Issues ailing PSBs

·         Lack of detailed financial reporting – The first sign of poor corporate governance is the personal use of corporate assets by promoters and/or executives.

·         From the abridged reporting requirements currently existed, it is difficult to identify any such preferential use.

·         Lack of accountability of independent directors – Independent directors can only be implicated for offences committed with their knowledge, attributable through board processes, connivance or negligence.

·         This lack of accountability is the reason behind the limited impact independent directors has had on the boards.

·         Inadequate PSB board engagement – As required by law, the boards of PSBs meet four times a year.

·         But given that, PSBs are facing exceptional challenges, these minimal engagements are not enough.

·         Conflict of Interest – Board members often sitting on several other boards.

·         However, this, in itself, is a major fault line as it can result in board interlock or conflict of interest.

·         Lack of customer-centricity – Retail customers are a consistent source of profits for PSBs.

·         But they have now started to prefer private sector banks; the reason is poor customer service.

·         While all PSBs have committees to address concerns of shareholders and staff, there is a lack of focus at the board level on customer interests, experience, grievances.

·         Lack of transparency in key appointments – The government set up the Banks Board Bureau (BBB) as an autonomous body for recommending appointments of senior officials in PSBs.

·         But since the members of BBB are appointed by the government, it still does not completely eliminate the possibility of government intervention.

Measures to improve efficiency

·         Detailed financial disclosures – It will allow all the NPAs to be tracked since there will be accountability, and informed lenders and shareholders will raise questions if funds are diverted fraudulently.

·         Make Independent directors accountable – To protect interests of lenders and shareholders, there is an urgent need to make independent directors’ accountability at par with rest of the board members.

·         Improve board engagement – The Uday Kotak Committee recommended it to be enhanced to five times a year.

·         But, given that PSBs are facing exceptional challenges, it should go beyond the requirements and meet at least six times a year.

·         Prohibit single member participation in multiple boards – Given the impact of PSBs on the economy, an exception should be made under the Companies Act to prohibit PSB board members to take up any other board membership.

·         Customer centric measures – To stay competitive, PSBs must set up a customer relationship committee at the board level to drive the message of customer service and customer centricity across banks.

·         Ensure transparency - To ensure transparency, there should be a collegium comprising of equal number of members from both the government and the opposition to recommend the board members.