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Business News/ Politics / Policy/  Govt tightens rules for appointing bank directors
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Govt tightens rules for appointing bank directors

The move is seen as a major step towards banking reforms

The department of financial services has opened a website where aspirants can apply for appointment as non-official directors in state-run banks. Photo: MintPremium
The department of financial services has opened a website where aspirants can apply for appointment as non-official directors in state-run banks. Photo: Mint

New Delhi: The government on Wednesday tightened rules for the appointment of independent directors on the boards of state-run banks, insurance companies, other financial companies and the Reserve Bank of India, seeking to improve standards of corporate governance at such institutions.

A non-official director should be at least a graduate with 20 years of relevant experience with a proven track record, and should not be a member of Parliament, state legislative assembly or a stock broker, the new guidelines released by the department of financial services said.

Also, a person who has been on the board of any bank or financial institution for six years, either continuously or intermittently, will not be considered for appointment as a director.

Candidates who have experience or academic training in fields such as agriculture, rural economy, banking, economics, business management, human resources, corporate law, finance, risk management and information technology will be considered.

These guidelines are part of an effort by the government to improve corporate governance practices and make them more competitive by ensuring that independent directors have the kind of professional background required to serve on the boards of state-run institutions.

The government has already separated the post of chairman and managing director (CMD) in state-run banks and streamlined the appointment process, making it more transparent.

The latest guidelines are a welcome move, but implementation will be key, said Ananda Bhoumik, senior director at India Ratings and Research Pvt. Ltd.

“Given the systemic importance of banks and financial institutions, greater emphasis needs to be put on the quality of the directors on the boards of such institutions. Relevant experience and expertise are important criteria as familiarity with the banking sector will help them make relevant contributions," he said.

An independent director should not be more than 67 years of age, according to the guidelines.

Retired senior government officials, retired CMDs and executive directors (EDs) of state-run banks, academicians and chartered accountants with relevant experience can apply.

Former CMDs and EDs can only apply for an independent director’s post after one year of retirement, and that too, not in the bank from which they have retired.

The guidelines also bar any person connected with hire-purchase, financing investment, leasing and other para-banking activities from becoming directors, though investors in such institutions have been allowed to apply provided they do not exercise any managerial control in those firms.

The guidelines were issued after they were approved by the appointments committee of the cabinet, headed by Prime Minister Narendra Modi. In a tweet, financial services secretary Hasmukh Adhia said the amended procedure for appointment of non-official directors will ensure better governance of public sector banks and financial institutions.

The department of financial services has opened a website where aspirants can apply for appointment as non-official directors in state-run banks. According to government estimates, at present, there are around 60 vacancies for non-official directors in banks and financial institutions.

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Published: 01 Apr 2015, 06:39 PM IST
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