The proposed Bank Board Bureau (BBB) — with a mandate to select public sector bank (PSB) chiefs, revamp PSB boards and devise consolidation strategies — would have a larger scope than envisaged and will now be Financial Services Sector Board Bureau (FSSBB).
The FSSBB would look into appointments at the top management and board level in all financial sector PSUs falling under the department of financial services (DFS) in the finance ministry, official sources told FE. The proposed board would also make recommendations for mergers and acquisitions/consolidation wherever needed, they added.
It will also look into matters relating to extension /termination of services and performance appraisal, besides building a data bank of the industry’s best professionals for recruitment. There will be focus on training programmes for top management and board level officials, besides bringing out a model code of conduct and ethics, the sources said.
The proposed body’s work would start with the insurance sector and then extend to public sector financial institutions (FI) and, later, to the pension sector.
On the cards is a move to split the post of chairman and managing director in public sector insurance companies (especially non-life, as LIC has already split the post), and getting the best talent from the private sector in leadership posts and boards of these firms through lateral hiring and handsome remuneration.
Nationalised insurance companies include LIC, General Insurance Corporation (GIC), National Insurance Company (NIC), Oriental Insurance Company (OIC), New India Assurance (NIA), United India Insurance (UII) and Agriculture Insurance Company of India. Public sector FIs include IIFCL, EXIM Bank, Nabard, SIDBI, Mudra Bank, NHB, IFCI, Irrigation and Water Resources Finance Corporation and SME Rating Agency of India.
Sources told FE that in December 2011 the DFS had internally initiated a review of the insurance sector. It was found that there were synergies that non-life insurance companies could leverage.
It was recommended that the four non-life insurers (NIC, OIC, NIA and UII) could be merged into one (or at least two), thereby drastically reducing expenses. This would ensure higher and sustained profits, which could be used to develop new products and expand operations for better penetration of non-life insurance.
To allay the fears of employees, the creation of more posts of executive director and managing director was suggested. These proposals were more or less accepted by the unions of these insurance companies, sources said, adding, however, that the suggestions are yet to see the light of the day.
These reforms have become necessary — the easing of foreign investment cap in the insurance sector from 26% to 49% will result in the entry of more global players and better managed companies could eat into the profits of state-owned insurance firms.
In fact, in June 2012, the then finance minister Pranab Mukherjee, expressing concerns over rising (premium) underwriting losses and inefficiencies, had asked PSU non-life firms “to curb the unhealthy competition in underwriting premiums.”
Currently, DFS is responsible for selection and appointment of chairman and managing directors/CEOs / executive directors/government nominee directors/ non-official directors in these public sector FIs and insurance companies.
The duties of DFS’insurance division include giving permission for foreign deputation of public sector insurance company chiefs and executives, as well as for commercial employment after their retirement. These responsibilities would be hived off to the FSSBB, which will revamp the selection system and make it more professional, the sources said. Currently, since top-level appointments are made by the government, these professionals do not necessarily work in a coordinated fashion (also due to lack of an efficient performance appraisal mechanism), resulting in inefficiencies and incompetence, sources added.
The idea is to hive off all human resource-related issues to the autonomous body and keep the government away from day-to-day operational decisions, they said. Though the FSSBB will be on the lines of the Public Enterprises Selection Board, it will be more efficiently run, the sources added.