The Reserve Bank of India (RBI) has released a new set of guidelines regarding the ‘Fit and Proper’ criteria for the elected directors on the boards of Public Sector Banks (PSB). These guidelines, which have been put in place to minimize political intervention and uphold the integrity of the PSBs, stipulate that elected directors are to be appointed by the Nomination and Remuneration Committee (NRC) of each respective bank’s board. Furthermore, the RBI requires all banks to establish an NRC consisting of at least three non-executive directors from amongst the board of directors.
Composition of Nomination and Remuneration Committee (NRC)
As per the RBI guidelines, each bank should have a Nomination and Remuneration Committee. The NRC is required to have not less than three non-executive directors from the bank’s board of directors. Not less than half of these directors are expected to be independent, with at least one member coming from the Risk Management Committee of the board. This composition has been designed to ensure transparency, balance, and proficient risk management within the committee.
The Objective of the Fit and Proper Criteria
The Fit and Proper criteria are intended to protect the Public Sector Banks from undue political influence. In a bid to maintain the integrity, suitability, and competence of the board members, the centre’s nominated directors are being kept away from the PSB board. Goal of the directive is to sanction individuals who have demonstrated impeccable integrity, relevant experience, deep understanding of banking, finance and allied fields, along with a track record of high professional standing to govern the banks.
Restrictions on Political Figures
In line with the objective of minimising political intervention, the RBI has deemed certain political figures ineligible for membership on PSB boards. These include Members of Parliament, state legislatures, and representatives of local governments. This move is aimed at ensuring that the decision-making process within the PSBs remains independent and is not influenced by political considerations.
| Eligibility Criteria | Status as per RBI Guidelines |
|---|---|
| Members of Parliament | Ineligible |
| State Legislatures Members | Ineligible |
| Representatives of Local Government | Ineligible |
Summary of RBI’s Fit and Proper Guidelines
The Reserve Bank of India, with its newly instituted Fit and Proper guidelines for Public Sector Banks, aims to fortify the autonomy and uprightness of these institutions. By installing an effective Nomination and Remuneration Committee, keeping away nominated directors, and excluding political figures from board membership, the RBI is striving to bolster the strength as well as the credibility of the PSBs.
