Reserve Bank Deputy Governor S S Mundra on Wednesday said public sector banks should be given “governance autonomy”, releasing them from multi-institutional oversights and overlapping controls.
While the immediate and overriding priority is to complete the clean-up of public sector banks’ balance sheets which is underway, simultaneously, process has to continue to bestow greater “governance autonomy” to these banks, Mundra said.
“My sense is that the Government ownership of these banks has resulted in crucial stability and resilience in trying times. Immediate roadmap should, therefore, be towards complete “managerial autonomy”. If Government remains the largest shareholder, not necessarily majority shareholder, it still serves the intended purpose. At the same time, it releases these banks from multi-institutional oversights and overlapping controls,” Mundra said while addressing the Banking Reforms Conclave 2016 organised by Governance Now in Mumbai.
“HR autonomy would naturally flow from the above. Banks would be able to move towards competitive compensation, flexible hiring and move away from the “collective bargaining”… just to quote a few from many possible outcomes,” he said.
After the clean-up, resultant provisioning needs coupled with meeting Basel III norms/ migration to IFRS and to capture due market share in growth funding would entail recapitalisation of most of these banks.
“Seeking this capital externally at this stage may be difficult as also value eroding for the majority owner,” he said.
Similarly, some of the reforms are driven by a global reform structure. These pertain to capital, liquidity and disclosure standards under the Basel III package.
“Some such other measures are TLAC, SIBs, misconduct rules, etc. Few other measures are currently under discussion, such as, imposing risk weight on sovereign exposure and new standardised approach for credit and operational risk,” Mundra said.
On governance in banks, he said some action have already been taken. This included setting up of the Banks Board Bureau (BBB), splitting the post of CMD into a non-executive Chairman and a CEO and the selection process made more objective.
“Going forward, BBB should also cover selection of other board members. Continuity of top management is crucial… hence reasonably longer tenure for CEO (say 5 years) is necessary. Initial appointment could be for three years with certain set milestones, which if achieved, should earn automatic extension for next two years,
“An orderly succession plan is crucial to ensure no abrupt changes in key direction of the organisation,” Mundra said.