For public good

One would have thought it was a golden opportunity to cleanse the governance mess in listed public sector banks and give minority shareholders a new deal. But, unfortunately, capital market regulator SEBI seems to be in no mood to throw its weight around to transform the weak governance structures in listed PSBs.

It appears to be sanguine playing a passive role when it comes to listed PSBsand not ruffle the feathers of the powers that be with whom both SEBI and the PSBs prefer a cosy ‘regulated’ relationship. Granted, in a business, the owner always calls the shots — whether it is the central government in PSBs or promoters in family-owned firms. Yet, SEBI as an ‘independent’ regulator has ignored the fact that, world over, listed state-owned enterprises are slowly being subject to the same norms of governance as for others.

In fact, SEBI has gone, and rightly so, the extra mile in many cases to prescribe stricter norms for listed companies than those spelt out in the Companies Act, 2013, on the sound principle that those entities which have raised moneys from the public need to conform to better governance norms. But it has clearly turned a blind eye to improving governance structures in listed PSBs, all of which (26) have raised funds from the public.

In the revised Clause 49 of the Listing Agreement (to be effective from October 1), SEBI has categorically stated that the new norms in the revised clause will apply to banks and insurance companies only to the extent it does not violate their respective statutes or guidelines prescribed by relevant regulatory authorities.

This smacks of regulatory double-standards and highlights the discriminatory approach to improving governance among listed entities. What this conveys, perhaps, is that if higher norms are prescribed in respective statutes for body corporates such as banks, financial institutions and insurers, Clause 49 will apply wherever both the regulations are aligned.

Sadly, SEBI has overlooked the reverse case scenario where the specific legislation is incapable of adhering to the norms prescribed for listed entities — the classic example being PSBs. It is well nigh impossible for PSBs under their existing Act to comply with Composition of Board under Clause 49 for the reason that majority of the directors of PSBS are either appointed by the Centre, their promoter and ‘independent directors’ are chosen by the promoter!

Rather than toeing the regulatory line of the respective legislation governing banks, it would have been better for SEBI to insist on a more stringent framework for listed PSBs. This approach could have improved the board composition of PSBs and helped tackle the unassailable truth that that PSBS are not to be seen as the exclusive domains of the government of the day.

It is bizarre to note that in the existing dispensation, which was in the earlier clause too, PSBs will have the benefits of listing but will not subject themselves to the conditions of listing because the regulator and the regulated entity prefer to be conveniently closeted in what one is tempted to term ‘related party regulation’.

The only way forward is to notify PSBs under the Companies Act, 2013, which provides for inclusion of body corporates under its fold, so as to remove the ‘perception’ among investors at large that PSBS are public limited companies, but in fact become so soon. This could only pave the way for introducing higher norms of governance by SEBI especially when the public stakes are very high and cannot be compromised any longer.

The writer is former President of the Institute of Company Secretaries of India