Public sector banks 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.

Wilful Defaulters in Nationalised Banks up by 60% in 5 years: Govt

As per a written reply given by Union Finance Minister Smt. Nirmala Sitharaman in Lok Sabha, the number of wilful defaulters in nationalised banks has increased by more than 60% to 8,582 in five years to March 2019.

Key Highlights

The Finance Minister provided the written reply in Lok Sabha to a question asked that whether the cases of willful defaulters of banks have increased during the past five years.

Wilful Defaulter is an entity or a person that has not paid the loan taken back to the bank despite having the ability to repay it. Wilful defaulters are acted against comprehensively.

Data Provided by Government:

By end of fiscal year 2014-15, the figure of wilful defaulters in nationalised banks stood at 5,349, and since then the number of such borrowers has been consistently rising- with being 6,575 (2015-16), 7,079 (2016-17), 7,535 (2017-18) and now increased to 8,582 in 2018-2019 fiscal.

During the last 5 financial years about ₹7,654 crore has been recovered from wilful defaulters’ accounts.

Steps Taken By Government

As per data reported by 17 nationalised banks in India, till 31 March 2019, suits for recovery have been filed in 8,121 cases out of 8,582.

SARFAESI Act: In cases involving secured assets, action under provisions of SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002) has been initiated in 6,251 cases.

RBI Instructions: As per the instructions provided by Reserve Bank of India (RBI), wilful defaulters are not sanctioned any additional facilities by banks/financial institutions, their unit is debarred from floating new ventures for 5 year and even criminal proceedings are initiated wherever necessary. In accordance with this FIRs have been registered in 2,915 cases.

SEBI Regulations: Besides, vide Securities and Exchange Board of India (SEBI) regulations, wilful defaulters and companies who has with wilful defaulters as either promoters or directors have been debarred from accessing capital markets to raise funds.

IBC 2016: The Insolvency and Bankruptcy Code (IBC), 2016 has debarred wilful defaulters from participating in insolvency resolution process.

FEO Act 2018: The government has enacted Fugitive Economic Offenders Act, 2018 for effective action against wilful defaulters who flee Indian jurisdiction. It provides for attachment and confiscation of property of fugitive offenders and to disentitle them from defending any civil claim.

PSBs: Government has also advised all Public Sector Banks (PSB) to decide on publishing photographs of all concerned wilful defaulters and to obtain certified copy of passport of promoters/directors and other authorised signatories of companies availing loans of over ₹50 crore. The heads of PSBs have also been empowered to request for issuance of look out circulars (LoC) against wilful defaulters.