Vinod Rai first chairman of Banks Board Bureau

By: | Published: February 29, 2016 12:54 AM

Taking forward the governance reforms in public sector banks (PSBs), the Modi government on Sunday named former Comptroller and Auditor General (CAG) of India Vinod Rai....

Taking forward the governance reforms in public sector banks (PSBs), the Modi government on Sunday named former Comptroller and Auditor General (CAG) of India Vinod Rai as the first chairman of the Banks Board Bureau (BBB).

The move is seen as precursor to the setting up of holding company where the government ownership of all public sector banks will be transferred.

The BBB would replace the Appointment Board for appointment of whole time directors and non-executive chairman of PSBs as well as help formulate appropriate strategies for their growth and development. Others in the 4-member Bureau are: Anil K. Khandelwal, former CMD of Bank of Baroda; HN Sinor, former Joint MD, ICICI Bank; and Rupa Kudwa, former MD & CEO, CRISIL. The appointees would have a tenure of two years.

As CAG between 2008 and 2013, Rai had played a key role in estimating a notional loss of R1.76 lakh crore in the 2G spectrum auction in 2008 during the UPA regime. This had created a political storm. Rai, a former civil servant, had also previously held the post of secretary in the financial services department.

The Centre had announced a Mission Indradhanush on August 14, 2015 to revamp the PSBs through a bottoms-up approach. The framework mainly comprised of appointments, BBB, capitalisation plan, distressing, empowerment, framework of accountability and governance reforms in the PSBs. To strengthen the PSBs, the government has said that it would not interfere in their operations.

As on September 2015, the PSBs accounted for 86% of the R3.47 lakh crore NPAs with all scheduled commercial banks. This number has increased significantly in October-December of 2015 after the Reserve Bank of India mandated banks for an asset quality review that has shaved off many PSBs’ bottom-lines due to reclassification of many accounts as NPAs to reflect the true value of the loans.

It is expected that once the bank holding company is set up, the borrowings by the banks, now hamstrung by the piling up of stressed  assets, could be facilitated. Also, it can take a balanced view of the capital requirements of various PSBs.

The government would infuse R70,000 crore out of budgetary allocations for bank capitalisation between FY16 and FY19.

The PSBs would also have to raise another R1.1 lakh crore to meet Basel III capital adequacy norms and to grow business. However, given the surge in bad loans in Q3FY16, the banks might not not be able to raise funds market in the current environment, analysts have said.

The Banks Board Bureau would also be responsible for selection of non-executive chairman and non-official directors on the boards. Besides, the body will also steer strategy discussion on consolidation based on the requirement.

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