Proxy advisors are calling for an overhaul of the State Bank of India Act, 1955 under which the eponymous lender was created. The Act should be updated to keep with the changing norms of corporate governance, two advisors are saying.
“The State Bank of India (SBI) is modernising itself,” Institutional Investor Advisory Services (IiAS) said in a report on Monday.
“It is leveraging technology, improving the quality of disclosures in its annual report, and behaving as any market leader should. But, its ability to become a beacon of good corporate governance is being scuttled by the half-century old State Bank of India Act 1955.”
For instance, SBI does not provide an e-voting facility to shareholders neither do shareholders have any say in dividend distribution or the appointment of auditors. “While this is not to suggest that IiAS is concerned over SBI’s dividend payout levels or its auditor appointments, not providing shareholders an opportunity to vote on such matters is an infringement of basic shareholder rights,” the report said.
Earlier this month, in a report reviewing SBI’s proposed merger with its associate banks, proxy advisory Stakeholders Empowerment Services (SES) had said, “SES is of the opinion that the SBI Act, 1955 is an age old law when nobody even thought of computers and e-voting facility. However, with the changing times the Act should have been amended and shareholders’ approval sought through a shareholders meeting as well as e-voting. SES is of the opinion that as good governance the shareholders’ approval should have been taken.”
What disempowers non-public shareholders the most is calling for a shareholders meeting of the country’s biggest lender. The SBI Act says that shareholders can ask for a meeting only if they own 20 per cent of SBI’s equity, which, at current market valuation, amounts to Rs 40,000 crore.
IiAS noted, “Admittedly, the 10 per cent threshold set by Companies Act 2013 is also high – but at a 20 per cent threshold, it is virtually impossible for any investor to requisition a meeting.”
“Under Arundhati Bhattacharya’s leadership,” IiAS said, praising the SBI Chairman, “SBI has done what was in its control. The bank has embraced technology, morphed itself to become more suitable to the current generation, and is doing what most organisations are expected to – be a good corporate citizen, be transparent and communicate with investors.”
But SBI’s corporate governance standards are being quelled by the SBI Act, which refuses to modernise itself, the advisor added.
“It is now incumbent upon Arundhati Bhattacharya, during her extended term, to release SBI from the clutches of its own charter. She needs to engage the government and even Parliament if needed, to make the required changes – this will be an enduring impact on SBI’s shareholders and may well be her lasting legacy.”