Banks Board Bureau (BBB): Benefits and challenges

• Banks Board Bureau (BBB) was formed in 2016 as a part of Indradhanush programme to revamp state-run banks.
• Former CAG Vinod Rai was appointed as the first chairman of the bureau.
• Idea to set up Bank Board Bureau was first mooted by a committee set up by the RBI to review the governance of bank boards. The committee was headed by P.J. Nayak.

About Banks Board Bureau.

1. The bureau was announced as part of the seven-point Indradhanush plan to revamp banking system in India. It is an autonomous body with three ex-officio members and three expert members, in addition to the Chairman.
2. The Bureau is mandated to play a critical role in reforming the troubled public sector banks by recommending appointments to leadership positions and boards in these banks and advise them on ways to raise funds and how to go ahead with mergers and acquisitions.
3. It will constantly engage with the boards of all 22 public sector banks to formulate appropriate strategies for their growth and development.
4. The BBB was earlier proposed by the government as a body of eminent professionals and officials, which will replace the Appointments Board for appointment of Whole-time Directors as well as non-Executive Chairman of PSBs.
5. The bureau will search and select heads of public sector banks and help them develop differentiated strategies of capital raising plans to innovative financial methods and instruments.
6. It would also be responsible for selection of non-executive chairman and non-official directors on the boards.
7. Besides, the body will also steer strategy discussion on consolidation based on the requirement.

Analysis:
Benefits:

• It will help in creating a holding company for the government’s stakes in 27 state-run banks—thereby facilitating consolidation in the banking sector. The Banks Board Bureau may also help in identifying the right fits when it comes to mergers.
• The government wants to encourage bank boards to restructure their business strategy and also suggest way forward for their consolidation and merger with other banks.
• Currently, state-run banks are struggling with high levels of bad debt and huge losses on account of higher provisioning. Gross non-performing assets (NPAs) of India’s 39 listed banks rose to Rs.4.37 trillion in December quarter—a rise of almost 50% from the Rs.2.92 trillion in the year earlier after RBI asked lenders to declare certain accounts as NPAs and mandated higher provisions for stressed accounts.. So, Saddled with a large pile of bad assets, public sector banks need dollops of capital. They also need to focus on sharpening efficiency and strengthening corporate governance. The Bureau is mandated to play a critical role in reforming the troubled public sector banks.

Challenges

• There are few challenges also faced by this bureau. The investment company can be set up only after legislative changes. For instance, the Bank Nationalisation Acts of 1970 and 1980 and the SBI Act and the SBI (Subsidiary Banks) Act need to be repealed and all banks need to be incorporated under the Companies Act ahead of this. This is a long-drawn process.
• To a large extent, the effectiveness of the Banks Board Bureau will be determined by the mandate and the freedom that the government gives them. The members will also need to be very well networked within the system to identify the right talent.
• It will not be easy to raise capital unless the government plans to overhaul the way public sector banks operate and this cannot be done by merely asking the bureau to select bankers for the top jobs.

What else needed to be done:

• Create a holding company to manage the government’s stakes in the public sector banks and facilitate consolidation in the sector and Open up the banking sector further'
• Explore options of allowing different types of banks to set up shops.
• The bureau should also have a say in the selection of independent directors of boards without which it will be difficult to help these banks develop strategies and raise capital as many directors on the boards of various banks neither understand strategy nor do they lend credibility to their institutions.

By: Vishal