The Finance Ministry is pushing for more board-level reforms in public sector banks and financial institutions.
PSBs and FIs will, henceforth, be required to hold one board meeting every quarter exclusively to discuss major policy and strategic issues.
The Finance Ministry has given this directive as regular board meetings, crammed as they are with routine agenda items, give a short shrift to the aforementioned issues.
The reform measures come in the backdrop of the Reserve Bank of India recently asking the Government to show ‘exemplary behaviour of corporate governance and exercise its ownership rights through the board’.
The Central Government is the majority stakeholder in 26 public sector banks. State Bank of India’s five associate banks also get clubbed under the PSB category. The Government wholly owns FIs such as Small Industries Development Bank of India and Export-Import Bank of India.
Policy, strategy issues
“A number of board meetings of banks are held, many of them even at short-notice...It is felt that the boards are not able to devote enough attention to the major policy and strategic issues in the regular meetings,” said the ministry.
The once-a-quarter exclusive board meeting on policy and strategy will take up one of the four identified items — strategic business plan, core business, human resources and succession planning, and risk and bad loans management.
While strategic business plan will include products and markets, innovation in business and e-governance, core business will include branch operations, online banking, customer service, business process re-engineering, productivity and costs.
“The boards will also have to cover topics such as key customer metrics; how does the bank differentiate its offerings (product/service) from the competition; how fast is technology being used to significantly improve customers’ experience…,” said the ministry in a communication to banks.
Financial reporting
One of the important agenda items for every board meeting should be the board financial reporting system.
This system, among others, gives highlights of the financial progress and key metrics (bad loans, customer acquisition and diversification), progress of key initiatives, and comparison of performance with plan/budget. The reporting system should also show the comparison against competitors and the best in business.
iPad for directors
Directors of PSBs/FIs may soon flaunt iPads. The ministry said the practice of cumbersome board agenda notes could be replaced with electronic copies and use of gadgets such as iPad for easy access could be promoted.