FM Nirmala Sitharaman's big announcement: Here's how bank boards will now be empowered

Finance Minister Nirmala Sitharaman, on August 30, announced a slew of reforms to improve the governance of public sector banks (PSBs).

To empower the PSB boards further, Sitharaman announced that the board committee of PSBs can appraise the performance of position of general manager and above.

PSBs can also recruit a Chief Risk Officer from the market, and the banks will be given freedom to hire the officer at market rates to ensure quality personnel. These boards can also decide a system of individual development plans for all senior executive positions.

To strengthen the board committee system, Sitharaman said that flexibility will be given to boards of large PSBs to enhance sitting fees of Non-Official Directors (NODs). These boards will also be given the mandate to reduce/rationalise board committees. Sitharaman also announced that MCB loan sanction thresholds be enhanced by up to 100 percent.

To enhance the effectiveness of NODs, they will perform a role analogous to independent director. Boards will also be given a mandate for the training of directors, and the NOD’s performance will be reviewed annually on a peer review basis. To bring about development in leadership, the strength of Executive Directors' has been raised to 4 in lager banks.

Sitharaman had also announced the merger of 10 PSBs to form four new entities.

She also announced the merger of Canara Bank with Syndicate Bank; United Bank of India and Oriental Bank of Commerce with Punjab National Bank; Andhra Bank and Corporation Bank with Union Bank of India, and the merger of Allahabad Bank with Indian Bank so as to strengthen these public sector banks (PSBs) and help achieve the target of a $5 trillion economy.