The Centre is not looking to bring public sector banks within the ambit of the new company law for now, a top Finance Ministry official has said.
There is no immediate plan to repeal the existing statutes governing PSBs as suggested by the PJ Nayak committee and incorporate the banks as companies, GS Sandhu, Financial Services Secretary, told Business Line .
Currently, almost all the PSBs barring two are operating under a statute --popularly known as the Bank Nationalisation Act.
There are only two state-owned banks that are now functioning as companies.
The RBI appointed PJ Nayak Committee --which reviewed governance of Boards of Banks in India--recommended that existing statutes under which PSBs were constituted be repealed and banks be incorporated as companies.
The panel had recommended that once banks be incorporated as companies, the Government shareholding in them be transferred to a Bank Investment Company (BIC).
Sandhu said the immediate priority of the Government will be to allocate Rs 11,200 crore capital promised to PSBs in the Budget for 2014-15.
"We will first complete the task of infusing the promised capital," Sandhu said.
The Nayak Committee recommendation of getting banks incorporated as companies is not in Government's radar for now, he added.
BIC concept, a bitter pill?
A BIC concept would have been a gamechanger for PSBs, which are now faced with governance issues, say banking experts.
The BIC concept operationally distances the Government from the banks, and assists in running banks in the interests of the taxpayers by ensuring better financial returns on the capital infused, PJ Nayak, who headed the committee, told BusinessLine on Saturday.
He said that the committee report had proposed that all the present governance powers execised in respect of the banks by the Government be passed onto BIC in the first instance.
And thereafter in a phased manner to the banks, after BIC and RBI are satisfied that each bank had a board staffed with professionals of competence.
"This process would also lead to compliance with Clause 49," Nayak said.
Thanks to SEBI's seemingly "light touch" regulatory approach to PSBs, these banks are not required to comply with clause 49 of listing agreement.
This is because PSBs are basically creations of statutes passed by Parliament.
Reforms is the way forward
S.N.Ananthasubramanian, former President of Company Secretaries Institute, said the Bank Nationalisation Acts -- Banking Companies ( Acquisition & Transfer of Undertakings) Act 1970 and 1980 are an "anachronism" in today's context.
These legislations governing PSBs have clearly outlived their utility, he said.
The structure of the Boards envisioned by the Bank Nationalisation Acts are relevant for a bygone era and had been appropriated by powers that be to further political and extraneous considerations.
"PSBs today are crying for reforms and the right tone has to be set from the top," Ananthasubramanian, who is also a practicing Company Secretary said.
In keeping with the avowed objective of the Government to repeal antiquated laws, these legislations too have no place to remain in statute book, he said.
By repealing the bank nationalisation laws and converting banks into public companies with consquent structural repositioning of Boards, PSBs can breathe free of contrived compliance,he said.