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Need More Organic Linkage With Finance Ministry, Says Banks Board Bureau

Government yet to respond to many recommendations made over last two years, says BBB



Vinod Rai, chairman of the India Banks Board Bureau, speaks during a Bloomberg Television interview (Photographer: Anthony Kwan/Bloomberg)
Vinod Rai, chairman of the India Banks Board Bureau, speaks during a Bloomberg Television interview (Photographer: Anthony Kwan/Bloomberg)

Vinod Rai-led Banks Board Bureau said there is a need for an “organic relationship” between it and the finance ministry as the government is yet to respond to its suggestions to improve governance at public sector lenders saddled with bad loans.

It wrote a letter to Finance Minister Arun Jaitley on July 26, 2017 seeking directions on the various suggestions it had made in the past, the bureau said in a statement on its website. So far, it has not heard on the progress made on these recommendations, the statement added.

The bureau made public its suggestions to the government in two years of its existence. These include “various issues in its remit, such as the ones made under the overarching theme of governance, reward and accountability framework in public sector banks,” the statement said. These seek to address the root cause of the challenges faced by the state-owned lenders.

The Bureau is not aware of the progress made in this regard and there has been no further engagement with the government.
Banks Board Bureau

The bureau was created to help prepare the banks for competition, manage and price risk across business cycles, develop resilience to generate internal capital. Its mandate is to also help the lenders generate external capital, warding off the moral hazard in counting on the scarce budgetary resources of taxpayers. Public sector banks are struggling to find growth capital as they account for nearly 90 percent of India’s non-performing loans worth over Rs 8 lakh crore.

If the government wants it address issues of governance around public sector banks in a holistic manner and make its output effective, “there is need for an organic relationship between government and the bureau”, its statement said. The bureau would be of greater utility to the finance ministry if there were “such organic linkages between the two institutions”, it said.

Listing other recommendations, the statement said the bureau had suggested that it receive specific mandates on issues of public sector bank consolidation, reworking the Articles of Association of IDBI Bank to make it similar to other such institutions which may have been in the public sector and strategies on stressed asset resolution of state-owned lenders.

The seven-member bureau, which started operations in April 2016, also comprises two government members: Rajiv Kumar and Seema Bahuguna, secretaries at departments of financial services and public enterprises, respectively.

“The bureau is also engaging with the public-sector banks to help build capacity to attract, retain and nurture both talent and technology—the two key differentiators of business competencies in the days to come,” according to the mandate listed on the its website.

After its inaugural meeting, the body decided to set a revised ‘Terms of Reference’ for itself and submit them the Finance Ministry for approval in May 2016, according to the bureau.

The ministry’s Department of Financial Services, in its November 2016 response, didn’t accept that the bureau’s suggestions be placed directly before the Appointments Committee of Cabinet. Its scope was broadened to advise the central government on matters relating to appointments.

The ministry also rejected its suggestion of developing a road map for transferring the government’s shareholding into a ‘bank holding company’. That’s what even the PJ Nayak Committee, which recommended setting up the bureau, had also suggested.

The ministry also didn’t accept its demand for a mandate on stressed asset resolution strategies.