Surprise sting in RBI proposal

Mumbai, Feb. 24: The Reserve Bank of India (RBI) has tossed up an idea that could spark a storm in bank boardrooms.

The RBI has asked a panel it formed last Thursday to consider whether there ought to be a certification process for the appointment of bank directors.

The idea has been encapsulated in the terms of reference set for an eight-member committee headed by Mohan V. Tanksale, currently chief executive of the Indian Banks’ Association and a former chairman and managing director of the Central Bank of India.

The committee has been asked to trawl the recommendations outlined by the Financial Sector Legislative Reforms Commission (FSLRC) on enhancing skill building and capacity development in banks and non-banking entities.

But tucked away in the terms of reference was the intriguing idea to “examine if the members on bank boards also need to be certified — by way of say an appropriately designed course which could be made mandatory for every individual before appointment to the board of a bank”.

If the idea is accepted, it would make India arguably the first country in the world to have a certification process for the appointment of bank directors.

At present, there is a certification process within the financial and corporate sectors only for chartered accountants and company secretaries — both through institutes that have been formed under statutes adopted by Parliament.

Until now, the Reserve Bank has asked banks to rely on “fit and proper” criteria for the appointment of bank directors. The specific criteria was laid out in 2004 following the

Dr Ganguly committee report which said due diligence of directors should be carried out with regard to their suitability for the post by way of qualifications, technical expertise, track record and integrity among others.

However, the central bank is now reviewing these norms as well, perhaps in the wake of the controversy at Yes Bank last year when its board fobbed off a very determined effort by Shagun Gogia Kapur (the niece of Yes Bank co-founder Rana Kapoor) to seek a board position on the bank that her late father Ashok Kapur had co-founded. The resultant controversy eventually led to a court battle.

Last month, the RBI had constituted another committee to review the functioning of the boards of banks and examine “fit and proper” criteria for directors, including their tenure. The committee, headed by former Axis Bank chairman

P. J. Nayak, will analyse representation on bank boards to see whether the boards have an appropriate mix of capabilities and necessary independence to govern the institution.

While observers see both these moves as part of a concerted effort by RBI governor Raghuram Rajan to improve the quality level at bank boards, some bankers are not amused at the possibility of having to go through a certification process before qualifying for a board position.

The Tanksale committee is expected to submit its report by April 30 and, subsequently, the RBI will have to take a call on its recommendations based on the feedback received. Senior bankers, who did not want to go on record, said the idea of undergoing a course may be a little far-fetched.

“Already there are various conditions laid out such as educational qualification among others before one can become a director. Many of them make it to the board after even working at the field level and gaining a lot of experience. The idea of a course may, therefore, not be appropriate in this context,” said an official who is on a board of a PSU bank.

This view is, however, contested by the chief of another nationalised bank. “It would be great. There is no harm in having to go through a course,” he added.

However, bank boards have always enjoyed a sort of diversity in their collegium of directors. There is a fair sprinkling of industrialists, corporate executives, bureaucrats, academicians, social activists and even NGO officials.

For instance, Homi R. Khusrokhan, who was earlier the managing director of Tata Tea and Glaxo, is on the board of ICICI Bank. Swati Piramal, director-strategic alliances and communications at the Piramal Group, is also on the board of the country’s largest private sector bank.

On the other hand, A.N. Roy, retired civil servant and former head of the police force in Mumbai, is on the board of HDFC Bank.

Similarly, at the State Bank of India (SBI), some of the other prominent faces include RBI deputy governor Urjit Patel, and banking secretary Rajiv Takru. It also includes Deepak Ishwarbhai Amin who has rich experience in the IT industry.

While a certification course for the bankers on the boards may sound reasonable, it might be a little ridiculous to insist that those drawn from other areas of society should also have to go through such a certification process before they can grace bank boards.