Chairman, MD posts must be split, says RBI

Talks underway with govt in this regard

Currently, the apex bank is in discussions with the government to split the posts of the chairmen and managing directors of state-run banks, Subbarao said adding: “Given our own positive experience, as well as global endorsement for this position (bifurcation of these posts), we will discuss this issue with the government.”

In an interaction with media here on the sidelines of a FICCI-IBA summit on Tuesday, the RBI Governor said: “This experience proves to be positive in the private sector banks (in our country), which has also been proved to be value-adding in international banks. Not giving too much power to one person is good.”

Earlier, addressing the banking summit, Subbarao, however, warned that an important criterion for deciding on splitting the post of chairmen and managing director in PSU banks “will be to what extent we will be able to lay down and enforce strict eligibility criteria for the position of the chairman of the board of a public sector bank”."

The RBI had set up a committee under the chairmanship of A S Ganguly in 2004-05 to study the issue of bifurcation of the posts of chairman and managing director of banks, which had recommended such a bifurcation.

Following this, such a bifurcation was implemented in private sector banks in 2007. “The RBI implemented the Ganguly group recommendations in all the private sector banks in 2007. Experience shows that this arrangement has worked well,” Subbarao said.

It can be noted that in the public sector banks, the top executive is designated as chairman and managing director, with the exception of the State Bank of India, where the top honcho is the chairman and there are four managing directors with clearly defined executive roles under him.

Explaining the logic behind such a separation, Subbarao said that bifurcation of leadership of the board from the day-to-day running of the business will bring about more focus and vision, as well as give the necessary thrust to the functioning of the top management of the bank.

It will also provide effective checks and balances. When asked whether the RBI will allow corporates to enter the banking space, he said, “We have sent in a draft amendment to the Banking Regulation Act to the government and the government is working on it. So amendments to the Banking Regulation Act are necessary before we contemplate corporates coming into the banking system."

“While the guidelines for the new bank licences will be issued shortly, the amendment to the Act is uncertain,” the Governor told reporters on the sidelines of the banking meet.