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Banks Board Bureau backs RBI, says govt still to act on its recommendations on PSBs

NEW DELHI: Days before its term ends, the Banks Board Bureau (BBB), led by former comptroller and auditor general Vinod Rai, has said that several of its recommendations were lying with the government and pitched for widening its mandate and greater dialogue over restructuring of public sector banks (PSBs). It also pointed out that the RBI does not have powers to regulate PSBs the way it does with private banks.

The statement from BBB, in a report made public on Monday, is in line with the recent stance taken by RBI governor Urjit Patel, who had suggested that the regulator did not have sufficient powers to regulate public sector players, something that the gover nment has contested.

“Everyone wants more powers saying they do not have enough. The only power available to us is to appoint bank chiefs after receiving a consent from the RBI, following consultations with the BBB,” said a source in the government.

In its over 50-page report, the BBB has said that it has made various recommendations related to governance, reward and accountability framework (GRAF), which was part of its mandate, but was “not aware” of the progress as there had been no further engagement with the government.

“The bureau, as a body of experts on public sector banking, would be able to provide greater utility to the finance minister on matters relating to the governance and performance of PSBs, if there were to be greater organic linkage and dialogue with the finance ministry. At present, the body is merely functioning as an appointment board,” the report said, citing a letter to FM Arun Jaitley in July.

The BBB has suggested that its role was curtailed compared to the initial mandate and it was not consulted on capital allocation. It also said former junior minister for finance Jayant Sinha and ex-RBI governor Raghuram Rajan had indicated that the bureau should have a role to play in the resolution of stressed assets.

In June 2017, given its mandate on devising a strategy, the BBB recommended that consolidation of PSBs should start with only those “anchor” public sector players, which could attain the same level of resilience as those that underwent consolidation in the recent past.

“In the context of competition from the technology-driven private sector, the recommendations were made to reward relatively efficient capital allocation strategy and to raise the possibility of deriving the benefits of economies of scale in the shortest possible time,” it said.

The agency further said that a template to rank PSBs had been prepared and shared with the department of financial services in February 2017, but it was awaiting “latest updates”.

“Regardless of this, the bureau has taken the initiative of undertaking the Relative Performance Rating of PSBs and transmitting the same to the government from time-to-time to facilitate decision-making regarding the extension/ termination of incumbent WTDs (wholetime directors),” the BBB said.

Similarly, it said it had not heard from the government on steps related to governance reforms that were suggested in March 2017.

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Banking/Finance-Industry-The Economic Times

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