PJ Nayak Committee Report and PSBs

The government has decided to separate the roles of Chairman and Managing Director CMD in public sector banks. This comes in wake of the recommendations made by P J Nayak Committee. The Committee had underlined its recommendations with the fact that empowerment of bank boards is vital. The Committee had concluded that PSBs troubles were the result of disempowered boards. It further pointed towards the following:

• As per the Bank Nationalisation Act, the qualification for board membership is narrow professionally in contrast to the private sector banks which allow highly qualified individuals of great experience as members of their boards.
• Furthermore, all non-official directors are appointed externally without consulting bank chairmen of the board. All directors apart from elected shareholder directors are nominated either by the government or RBI. Thus, they are not completely independent. Also, most of these members are government nominated only as LIC has a major shareholding in almost all PSBs. Thus, independent directors on PSB boards are highly prominent due to their absence.
• The PSBs boards have no “fit and proper” assessment for incoming directors as done by private sector banks. These directors usually get appointed due to their political affiliation. The deserving candidates thus do not get a chance.