Finance Ministry Monday said it is considering bifurcation of the post of Chairman and Managing Director in public sector banks to strengthen corporate governance in the light of recent cases of corruption.
“We are considering the proposal (to split CMD’s post),” said Financial Services Secretary G S Sandhu.
Last week, Finance Minister Arun Jaitley had said the government was taking steps to professionalise the management and help them strengthen the risk management system in the public sector banks.
“Professionalising the management of the banks, we have taken some decisions in this regard. We expect banks to have better risk management. The Department of Financial Services has been actively working in this regard,” Jaitley had said.
Earlier this month, Syndicate Bank Chairman and Managing Director (CMD) S K Jain was arrested for allegedly receiving a bribe of Rs. 50 lakh to enhance credit limits of Bhushan Steel and Prakash Industries.
Besides, some officials of Oriental Bank of Commerce and Dena Bank were suspected of misappropriating funds worth Rs. 436 crore from their fixed deposit customers.
The government has initiated a forensic audit in the alleged scam.
Earlier, bifurcation of the CMD’s post was also suggested by Reserve Bank to the Finance Ministry.
RBI had contended that CMDs of public sector banks enjoy absolute power along with boards.
The central bank had also said CMDs often dominate the board during their tenure and therefore it also recommended that the post of CMDs be separated to empower the board.
In PSBs, the top executive is designated as CMD, with the exception of the largest lender State Bank of India, where the top position is commanded by the Chairman and there are four Managing Directors with clearly defined executive roles under her/him.
The posts of Chairman and MD in the private sector are held separately.
RBI had set up a committee under the chairmanship of A S Ganguly in 2004-05 to study the issue of bifurcation of the post of Chairman and Managing Director in banks. The panel had recommended bifurcation. Private sector banks in 2007 implemented these recommendations.