Members of the media and other attendees queue at the entrance to the reception of the Reserve Bank of India (RBI) in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

No RBI Nominee Should Be On Boards Of State-Owned Banks, Says Urjit Patel

No central bank nominee should be on the boards of state-owned banks to avoid “conflict of interest”, Reserve Bank of India Governor Urjit Patel said while briefing a parliamentary panel today over the PNB-Nirav Modi fraud case.

The central bank is discussing the matter of RBI nominee director with the finance ministry, he told the Parliamentary Standing Committee on Finance, according to sources who were present at the briefing. Patel today appeared before the panel, whose members include former Prime Minister Manmohan Singh, to brief it on bad loans, recent bank frauds and other issues.

He said that the primary and collective responsibility to contain bank frauds rests with the board, according to the sources. Emphasising on the director's role, Patel in a written reply to the panel said the main role of any director on the bank's board, including the nominee director, is to ensure that the bank is managed efficiently and professionally.

Patel was responding to the queries posed by Members of Parliament on the governance issues in ICICI Bank Ltd. and Axis Bank Ltd., besides questions related to $2 billion fraud at the Punjab National Bank perpetrated by diamond trader Nirav Modi. “The proposals coming before the board and its committees are consistent with normal banking practices, guidelines of the government, the RBI and are not violative of any law,” he said.

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RBI nominee directors should be distanced from management committee of the board (which takes credit decisions), to avoid any conflict of interest and the RBI nominee should not be on the boards of the public sector banks, he added.

He added that the separation of the post of chairman from that of the CEO/MD, in the nationalised banks, has been done with a view to strengthen the independence of the board and enhance its overview of the management. Highlighting the need for implementation of the PJ Nayak committee report, Patel said it will go a long way in improving the role of the boards of nationalised banks.