Centre plans to strengthen boards of PSBs through amendment to banking laws: Report

The Centre is reportedly aiming to strengthen the boards of public sector banks (PSBs) through the Banking Laws Amendment Bill in the Monsoon Session of Parliament, which will specify terms of office for full-time and independent directors among other changes.

The Banking Laws (Amendment) Bill, which also facilitates privatisation of PSBs, will require directors to disclose their interests in other companies, and the Centre may also bring in conditions to hold directors accountable.

The changes being considered by the Centre include specifying the tenure of chairman of PSBs and conditions of their service. When banks were nationalised, the chairman acted as a custodian of the bank, according to the Banking Companies (Acquisition and Transfer of Undertaking) Act, and the Centre is considering making changes that shall replace the existing clauses, Business-Standard reported.

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To improve disclosures, directors on the boards of state-owned lenders will have to disclose their interest in any other company or bank as notified by the Centre, an official told the publication.

The Centre is also looking to allow a fresh scheme for the board of directors of PSBs that would specify the number of directors who can be notified by the government, and the number of directors who can be appointed by shareholders, consequent to their shareholding, the report said. Currently, the Centre can appoint six directors to PSBs, while shareholders can appoint 1 director for 16 per cent, 2 for 16-23 per cent, and a maximum of 3 directors beyond 32 per cent of shares.

The Centre is also seeking to remove the 10 per cent shareholding cap for individuals in PSBs to help private equity firms pick up stakes in the PSBs on the block for privatisation, the report added. The Bill is expected to reduce the Centre's minimum holding in PSBs from the current 51 per cent to 26 per cent.