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Bank Board Bureau's Vinod Rai echoes Urjit Patel, calls for regulatory reforms in PSBs

Last week, it was RBI Governor Urjit Patel, who blamed the "system of dual regulation by the Finance Ministry in addition to RBI" for creating an environment susceptible for frauds like the still-unravelling PNB scam.

twitter-logo BusinessToday.In   New Delhi     Last Updated: March 20, 2018  | 14:59 IST
Bank Board Bureau's Vinod Rai echoes Urjit Patel, calls for regulatory reforms in PSBs

In less than a week, two top banking sector insiders have suggested that banking regulatory powers need to be ownership neutral. Last week, it was RBI Governor Urjit Patel, who blamed the "system of dual regulation by the Finance Ministry in addition to RBI" for creating an environment susceptible for frauds like the still-unravelling PNB scam.

Now, it's Banks Board Bureau (BBB) Chairman Vinod Rai who has brought up the point in a detailed report titled 'Compendium of Recommendations' that was uploaded on the official website on Monday.

"While the government retains its majority shareholding, it is very much possible for the public sector to reach the same levels of efficiency, as the private sector, provided governance regulations, supervision and the developmental agenda are allowed to be ownership neutral," he penned in the foreword to a compilation of the various recommendations made by the Bureau since inception in April 2016.

The former Comptroller and Auditor General (CAG) then proceeded to systematically list how the bureau which was set up advice the government on aspects like appointment, code of conduct and ethics at PSBs has been reduced to little more than a paper tiger. Worse, he puts the spotlight on a breakdown in communications with the government.

The report cites the BBB's efforts towards appointing non-executive chairmen in public sector banks (PSBs). It had made several recommendations - most of them a year ago - to deal with the existing vacancies and the challenges in attracting talent.

The report states that "the Bureau continues to await latest updates from the DFS [Department of Financial Services] on the status of these recommendations." Similarly, the BBB alleges that the DFS has been sitting on its recommendations on compensation practices at PSBs for over 13 months now.

The report's section on "code of conduct and ethics" is far more damning, especially in light of the PNB fraud. Back in March 2017, the BBB had made several detailed recommendations to the DFS on improving the vigilance mechanism in PSBs, including setting up a feedback loop between employees and managers that encourages whistle-blowing.

Ironically, just last week senior officials of all PSBs, including chief technology officers and chief risk officers, met up for a three-day workshop to figure out ways to strengthen their risk management mechanism.

A key decision taken at the meeting - which came about as a result of the finance ministry's February 27 directives to the PSBs to come out with a pre-emptive action plan in tackling operation and technological risks - was for PSBs to strengthen their 'know your employees' systems and encourage whistle-blowers.

In its last chapter, looking at the BBB's future role, the report reproduces extracts of a letter that Rai claims to have sent to Finance Minister Arun Jaitley back in July 2017. The letter sought to define the Bureau's future mandate and underline the issues it was facing.

"Going forward, if this initiative has to gain credence, the Government and its functionaries will have to decide how this institution can ensure arm's length functioning of the executive from the professional working of public sector banks," Rai wrote in his letter.

"The Bureau, as a body of experts on public sector banking, would be able to provide greater utility to the Finance Minister on matters relating to the governance and performance of PSBs, if there were to be greater organic linkage and dialogue with the Finance ministry. At present the body is merely functioning as an appointment board," it added.

Furthermore, apart from offering to provide "an independent feedback to the Finance minister at least on a half yearly basis on the degree of implementation of its various recommendations", the letter sought a meeting with the finance minister to take the discussion forward. The final footnote claims that the BBB "continues to await a meeting".

Apart from Rai, the team includes H.N. Sinor, former Joint MD of ICICI Bank, Department of Public Enterprises Secretary Seema Bahuguna and former Crisil chief Roopa Kudva. In addition, N.S. Vishwanathan, RBI Deputy Governor is among the Bureau's ex-officio members. Interestingly, this report comes just 12 days before the present term of the BBB members ends (on March 31).

With PTI inputs

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