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Bank Board Bureau impact on Public Sector Banks

Bank Board Bureau (BBB) was formed with a view to improve the Governance of Public Sector Banks (PSBs). BBB is an autonomous body which will recommend selection of heads of Public Sector Banks and Financial Institutions and help Banks develop strategies and firm up capital raising plans. BBB is headed by former Comptroller-Auditor General of India, Mr. Vinod Rai. BBB Comprises of three members from banking and related industries and three ex-officio members appointed by Government of India.

The Origins

A committee was set up by the RBI to review the governance of bank boards, headed by former chairman and managing director of Axis Bank Ltd P.J. Nayak. In May 2014, the committee had suggested the formation of the bureau as a first stage in a three-phase process to empower the boards of public sector banks. The ultimate goal of government is to consolidate the banking sector so that ailing banks get merged with stronger ones to tide over NPA issues and other uncertainties.

 

All the major public sector banks are envisaged to be held by single investment company and bureau was given the task in assisting the banks in this transformation. The members of the bureau would have a tenure of three years or until powers are passed on to the investment company, whichever is shorter, and their remuneration would at least be on par with the senior bank chiefs, the panel had recommended.

Key Functions of BBB

  • Recommendations of appointments to leadership positions and board members of public sector banks, including the whole-time directors and the top bank management, to professionalize and depoliticize the appointment process
  • Advise the banks on ways to raise capital funds (It is estimated that PSBs need Rs. 1.8 Lakh Crore as capital infusion out of which government agreed to invest Rs. 0.70 lakh Crores leaving Rs. 1.1 Lakh Crores which banks have to raise from elsewhere)
  • Preparation of roadmap and guiding the PSBs during the process of mergers and acquisitions.