Govt bank boards told to focus on policy

FinMin, RBI raise issues relating to micro management and better corporate governance.

The Union finance ministry has asked board members of public sector banks to stop micro-managing functioning and, instead, focus on policy issues, a move seen at improving corporate governance practices in these institutions.

D K Mittal, secretary, financial services, has met top bank officials on the matter and asked all public sector banks to schedule a board meeting in New Delhi by December, to communicate the ministry's views.

The directive comes after a spate of financial irregularities hit the financial sector in the past year. In November last year, some public sector bank officials, including a board member, were arrested by the Central Bureau of Investigation for allegedly sanctioning loans in return for bribes.

The Kingfisher saga

"It is often found that directors are more interested in specific details like if a loan has been sanctioned to a particular firm or regarding transfer of particular employees. The government has asked them not to intervene in daily operations and concentrate more onpolicies and practices the bank should follow, like exposure caps, whether to continue lending to certain sectors having stress, branch opening policies and the like," said a senior official from a state-run bank.

The Reserve Bank of India has also raised the issue of better corporate governance in banks. The regulator has already initiated a process and its supervisory department is to check how much time the bank's top management, like chairman and executive directors, spend in their office, and is to review the governance structure.

IITian-banker turned monk urges Wall Street to meditate

During the interaction with bank managements, the latter were also asked to ensure a rise in employee productivity. Data shows private sector bank employees are far ahead in this area. According to RBI data, profit per employee for the country's largest lender, State Bank of India, was Rs 3.85 lakh for 2010-11. For the largest private lender, ICICI Bank, it was Rs 10 lakh. Among government lenders, Bank of Baroda is on top, at profit per employee in 2010-11 of Rs 11 lakh. On an aggregate level, public banks' profit per employee was Rs 5.93 lakh in 2010-11, while for new-generation private banks it was Rs 8.93 lakh.

One reason for lower profit per employee for public sector banks is due to higher staff expenses. Public sector banks' wages to total expense ratio in 2010-11 was 17.27 per cent; it was 13.83 per cent for private banks. The average overall operating expense was also much higher for public sector banks.