Former State Bank of India chairman and managing director Pratip Chaudhuri feels there are enough safeguards in place to ensure that boards of state-owned banks do a good job.
In an interview to CNBC-TV18's Latha Venkatesh and Sonia Shenoy, Chaudhuri said boards of PSU banks were reasonably professional as of now. On whether the recommendations of the PJ Nayak panel on governance of bank boards would be accepted, Chaudhuri said it would depend on the political leanings of the next government.
Also Read: RBI, not FinMin, should oversee PSU bank regulations: Panel
Nayak-led panel, among other things has recommended that government holding in PSU banks be brought below 50 percent.
Below is Pratip Chaudhuri's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: What are your first thoughts on the PJ Nayak report? From what we know of the government, it is impossible that so many radical changes will take place. The government will probably distance itself from public sector undertaking (PSU) banks or do you think they might actually make those changes?
A: These are ideological issues and have very little to do with economics, so to take a call on this would be dependent on the political inclination of the next government.
Latha: It maybe a pragmatic call since the economy is in a serious downturn, there are a lot of non-performing loans (NPLs) and it makes a lot of sense to allow for a little more of private capital. Do you think that maybe it accepted, at least parts of it, out of necessity?
A: I cannot comment on this. It depends entirely on the political establishments who have to take a call.
Latha: Modi has a record of having professionalised the boards of Gujarat PSUs without privatising but by removing politicos and adding independent directors. Do you think there will be a sea-change in the running of the PSU banks if parts of the report, which do not require act changes, are accepted- the government stake not being reduced; bank board getting professionalised or a minimum five year term for the chairman and three year term for the ED getting fixed?
A: I do not think so because the board of the banks already includes two shareholder nominees, in which the majority owner and the bank management has a reasonably good say and one or two government nominees are invariably, chartered accountants.
Also, there is a clause that nobody can be a bank director for more than six years.
So, that weeds out very long standing directors. A couple of them are like social activists and the DG is the RBI nominee on the SBI board.
Hence, I do not see a quantum change in the board. It is a function of ownership. Therefore, if the ownership remains status quo - 51 percent plus, but on the issue of term for the CMD, three years for chairman and the ED is good enough because five years makes a person slightly complacent. In three years, one year you get to understand, one year to do a cleanup and the last year to leave your imprint.
Sonia: What do you think could be the easiest recommendation to follow through for the new government and also, in terms of timeline, how long could professionalisation of the board take?
A: The boards are reasonably professional even now, so, saying that they are unprofessional is not a right assumption.
The question should be on increasing the professionalism of the boards; it is not particularly the nature of composition of the board, but the persons who constitute it. Therefore, from the experience in SBI, I do not feel the boards lack professionalism.
This report has to be seen and examined by the political establishment. No matter what the economic arguments are, it is slightly premature and maybe a little pointless to debate on this.
Latha: Is there anything in the report that is more easily acceptable though-- where political leanings are not important? Did you see anything in the report which could be accepted by both-- the government and the RBI?
A: I have not seen it in detail. I have only seen the headline and thus, it is not right for me to comment on it.
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