Navigating the Transition: What to Expect with the FSIB Taking Over from the Bank Board Bureau

Kirann
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Introduction

Bank Board Bureau (BBB) is an autonomous body of central government for improving the governance of public sector banks and All India Financial Institutions (AIFI). By governance of banks, we mean the management, training, capacity building and termination of a person in an organisation. BBB was established to make all recommendations for improving the governance of state-owned banks and financial institutions. BBB was just an advisory body, I.e., it was not mandatory on the part of the government to comply with their decisions. The final decision had to be taken by the Ministry of Finance with the consent of the Prime Minister’s Office (PMO).


Establishment of BBB

The Bank Boards Bureau was established on April 01, 2016, in the place of the Appointments Board. It was headquartered in Mumbai, Maharashtra. Its establishment was recommended by “Committee to Review Governance of Boards of Banks” in India. It was headed by P Jayendra Nayak, also known as PJ Nayak Committee. Its purpose was to make public sector banks comparable with private sector banks.


PJ Nayak Committee

This committee was set up in 2014 to review the governance of Boards of a bank. It was headed by PJ Nayak (Former chairman and CEO of Axis bank).

It highlighted that:

  • The public sector banks are in a risky position and have high non-performing assets which is resulting in capital erosion of the banks.
  • Finance ministry and the Reserve Bank of India (RBI) influence the existing board to a large extent and therefore they hinder the independent working of the board.
  • The government has more than or equal to a 51% stake in public sector banks, but these banks are returning negative values to the government.
  • There is a strong need to bring reforms to the existing board for establishing economic stability in the country.

Key Recommendations

  • The government should repeal all the acts, like the Banks Nationalization Act 1970, 1980 and SBI subsidiary act, that hinder the independent working of the board.
  • There should be privatization and mergers of banks. Government should be free from the banks' business.
  • There should be random audits in the state-owned institutions.
  • A new board should be created for hiring top level personnel to the banks and AIFIs.
That is why the Bank Boards Bureau was established in 2016, which was entrusted with the task of recommending senior officials to banks and AIFIs.


Functions of BBB

BBB was required to perform all the functions which are considered necessary for the smooth working of banks and AIFI. It included-
  • Providing assistance to banks to restructure their business strategies, so that they can minimize their bad loans and raise capital.
  • Providing assistance to elect the chiefs, executive directors, non-executive directors and chairpersons of public sector banks. These persons can also be elected from the private sector.
  • Providing recommendations on the code of conduct and suitable training that is required for the proper functioning of state-owned institutions.
However, it is to be noted that the entire functioning of BBB was advisory in nature and the government was not bound to comply it.


Composition of BBB

BBB consisted of -

  • A chairman,
  • Three ex-officio members-
  1. Secretary of Department of Public enterprises
  2. Secretary of Department of Financial services
  3. Deputy Governor of RBI,
  • Five expert members, out of these two members would be elected from the private sector.
Bhanu Pratap Sharma was the chairman of BBB when it was replaced by Financial Services Institution Bureau (FSIB).


Establishment of FSIB

BBB was responsible for recommending the names of top authorities in state-owned banks and financial institutions (FIs) only and the government wanted the recommendations for insurance sector to come under the ambit of BBB.

But in 2020, Delhi High Court gave its verdict on the jurisdiction of BBB and said that it is responsible for recommending the names in banks and FIs and insurance sector cannot be covered under ambit of BBB.

As the result of it, Appointment Committee on Cabinet (ACC) passed a resolution to replace BBB with FSIB. It was proposed by Department of Financial Services, Ministry of Finance.


FSIB was established on July 1, 2022, and performs the same functions as BBB but with a wider scope.

FSIB is responsible for recommending the names of top-officials, like chiefs, chairpersons, whole-time directors or non-executive directors of banks as well as insurance companies.


Composition of FSIB

FSIB consists of 11 members
  • A chairperson – Bhanu Pratap Sharma who was the chair of BBB has been appointed chairman of FSIB for the term of two years.
  • Four ex-officio members-
  1. Secretary of Department of Financial services.
  2. Secretary of Department of Public enterprises.
  3. Chairman of Insurance Regulatory Development Authority of India (IRDAI).
  4. Deputy governor of RBI.
  • Three expert members with subject matter knowledge relating to PSBs and FIs.
  • Three expert members with subject matter knowledge relating to public sector insurance companies (PSIs).

Conclusion

The main essence of establishing FSIB is to expand the working of BBB to the insurance sector. It is also an autonomous body which is entrusted with the task of recommending the higher officials in the banks and insurance companies. However, Final decision is to be taken by Ministry of Finance with the consent of PMO.


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