The other members of the board include Anil K. Khandelwal, a former chairman of Bank of Baroda; H.N. Sinor, a former joint managing director of ICICI Bank Ltd; and Roopa Kudva, a former managing director of rating company Crisil Ltd, a finance ministry statement said on Sunday.
The tenure of Rai and other members of the board will be of two years. Besides these members, there will two representatives from the government: secretary, department of financial services of the finance ministry; and secretary, department of public enterprises. The deputy governor of the Reserve Bank of India will represent the central bank on the board.
All the members and chairman will be part-time. The Banks Board Bureau will start functioning from 1 April 2016.
Finance minister Arun Jaitley last year announced the plan to set up a seven-member Banks Board Bureau as part of the government’s Indradhanush programme to revamp the functioning of the state-run banks. The board is an attempt to separate the functioning of the banks from the government by creating another entity in between to act as a link between the two.
It will also help in creating a holding company for the government’s stakes in 27 state-run banks—thereby facilitating consolidation in the banking sector. The Banks Board Bureau may also help in identifying the right fits when it comes to mergers.
The announcement of the Banks Board Bureau comes at a time when state-run banks are struggling with high levels of bad debt and huge losses on account of higher provisioning.
Gross non-performing assets (NPAs) of India’s 39 listed banks rose to ₹ 4.37 trillion in December quarter—a rise of almost 50% from the ₹ 2.92 trillion in the year earlier after RBI asked lenders to declare certain accounts as NPAs and mandated higher provisions for stressed accounts.
The clean-up of bank balance sheets has impacted profitability of all state-run banks and made them dependent on the government, their major stakeholder, for capitalization. The weak balance sheets have also reduced fundraising options for banks as low valuations do not make it feasible for them to go to the market.
Global ratings agency Fitch Group Inc., in a report earlier this month, pointed out that the credit profile of Indian banks will come under pressure unless they are adequately capitalized.
Analysts are sceptical of the government’s choice of members: an ex- bureaucrat, ex-bankers and a researcher-cum-investment banker.
“The Banks Board Bureau will be required to select the right people to head the banks. For this, they need to have a very good understanding of what is happening in the banking system, and what is the way to resolve the challenges. So, it would have been preferable to appoint members with some international experience or those who have had the reputation of doing something disruptive in the past. Sinor, for instance, is a very good choice, as he has worked across the public and private sector and across markets," said Abizer Diwanji, the national head of financial services at EY India, a consutancy.
“To a large extent, the effectiveness of the Banks Board Bureau will be determined by the mandate and the freedom that the government gives them. The members will also need to be very well networked within the system to identify the right talent," Diwanji added.
To be sure, the appointees have some links to the banking sector.
Prior to his appointment as CAG, Rai served as secretary in the department of financial services that, as part of the ministry of finance, looks after the functioning of state-run banks. Rai is, however, best known for bringing to the fore irregularities in 2G spectrum and coal mine allocations during the United Progressive Alliance (UPA) government.
Sinor worked in the state-run Central Bank of India and Union Bank before joining ICICI Bank in 1997. He was also chief executive of the Association of Mutual Funds of India (Amfi) till last year.
Khandelwal, after retiring from Bank of Baroda, headed a committee that in its report to the government sought to reform human-resource practices followed at state-run banks.
Kudva, who is currently managing director of Omidyar Network India Advisors, the Indian arm of US-based philanthropic investment firm Omidyar Network, closely monitored the financial sector during her tenure at Crisil.