The bureau was set up as an autonomous body. It will have three ex-officio members and three expert members, in addition to the Chairman.
Important functions performed by the Bureau:
- Recommend appointments to leadership positions and boards in PSBs and advise them on ways to raise funds and how to go ahead with mergers and acquisitions.
- Constantly engage with the boards of all 22 public sector banks to formulate appropriate strategies for their growth and development.
- Search and select heads of public sector banks and help them develop differentiated strategies of capital raising plans to innovative financial methods and instruments.
- Be responsible for selection of non-executive chairman and non-official directors on the boards.
- Steer strategy discussion on consolidation based on the requirement.
In February 2016, the proposal of the Department of Financial Services (DFS) for the constitution of the Banks Board Bureau was approved and thus the bureau was established. Former CAG Vinod Rai was appointed as the first chairman of the bureau.
Significance of BBB?
The bureau has been set up at a time when public sector banks are grappling with a huge problem of bad loans with their collective gross NPAs (Non-Performing Assets) approaching Rs. 4 lakh crore level. Saddled with a large pile of bad assets, public sector banks need dollops of capital. They also need to focus on sharpening efficiency and strengthening corporate governance. The Bureau is mandated to play a critical role in reforming the troubled public sector banks.
What else needs to be done now?
- Create a holding company to manage the government’s stakes in the public sector banks and facilitate consolidation in the sector.
- Open up the banking sector further and explore options of allowing different types of banks to set up shops.
- The bureau should also have a say in the selection of independent directors of boards without which it will be difficult to help these banks develop strategies and raise capital as many directors on the boards of various banks neither understand strategy nor do they lend credibility to their institutions.
BBB is temporary:
- BBB is meant to be a temporary provision, until Bank Investment Company is set up.
- The government has maintained that BBB is the first step towards a holding company for the government’s stakes in the public sector banks and facilitate consolidation in the sector.
- According to P.J.Nayak Committee, the members of the bureau would have a tenure of three years or until powers are passed on to the investment company, whichever is shorter, and their remuneration would at least be on a par with the senior bank chiefs.
- Why? The investment company can be set up only after legislative changes. And it is a time-consuming activity (considering the recent trend in the way of functioning of the Parliament)
Is BBB an Old wine in a new Bottle?
- The government has done nothing, but has replaced the earlier appointments committee with the bureau.
- As there is no change in its constituents: An RBI deputy governor, two bureaucrats and four external experts.
Related Notes: