non-operative financial holding company Current Affairs - 2019

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RBI tightens fit-and-proper criteria for directors on PSB boards

Reserve Bank of India (RBI) has tightened fit-and-proper criteria for directors on boards of state-run Public Sector Banks (PSBs). In this regard, it has issued RBI (‘Fit and Proper’ Criteria for Elected Directors on the Boards of PSBs) Directions, 2019.

Purpose of directions is to determine ‘fit and proper’ status of person to be eligible to be elected as a director on PSBs. It has for the first time, laid down exhaustive list for the disqualification of directors. The revised norms are applicable only to PSBs and RBI in future may issue separate guidelines for private banks and non-banking financial companies (NBFcs).

Revised Fit & proper regime

Nomination and Remuneration Committee (NRC): PSBs are required to constitute NRC consisting of minimum of three non-executive directors from amongst board of directors. Centre’s nominee director shall not be part of the NRC.

Criteria for Candidate: The candidate who wants to become elected director should be between 35-67 years old. Elected director shall hold office for a period of 3 years. Director post shall be eligible for re-election, provided that no director holds office for period not more than (exceeding) 6 years, whether served continuously/intermittently.

Exemptions: It bars candidate who is member of board of RBI, any rival bank, Financial Institution (FI), Insurance Company or NOFHC (non-operative financial holding company). It also bars candidate who is engaged in business of stock broking or partner of Chartered Accountant (CA) firm presently engaged as Statutory Central Auditor of any nationalised bank or State Bank of India (SBI).

It bars members of Parliament (MPs), state legislatures (MLAs), and local governments from becoming e members of PSB boards. It also exempts person involved in hire purchase, financing, money lending, investment, leasing and other para banking activities from appointment.