Fit-and-proper criteria

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Fit-and-proper criteria

 

What to study?

For prelims and mains: Fit and proper criteria- features, need and significance.

 

Context: The Reserve Bank of India (RBI) has tightened the fit-and-proper criteria for directors on the boards of state-run banks.

The revised norms are applicable only to public sector banks (PSBs).

 

Key changes proposed:

  • As per the Reserve Bank of India (‘Fit and Proper’ Criteria for Elected Directors on the Boards of PSBs) Directions, 2019, all the banks — SBI and nationalised banks — are required to constitute a Nomination and Remuneration Committee (NRC).
  • Centre’s nominee director shall not be part of the nomination and remuneration committee (NRC).
  • The terms with regard to the NRC and the manner of the appointment of directors have been aligned with the practice in private banks, the recommendations made by the Banks Board Bureau, and with the provisions in the Companies Act.
  • Composition of NRC: The NRC will have a minimum of three non-executive directors from amongst the board of directors. Of this, not less than one-half shall be independent directors and should include at least one member from the risk management committee of the board.
  • Eligibility: As per the directions, the candidate who wants to become an elected director should at least be a graduate. He/She should be between 35-67 years old as on the cut-off date fixed for submission of nominations for election. The candidate should have special knowledge or practical experience in areas useful for banks.
  • An elected director shall hold office for three years and shall be eligible for re-election, provided that no director hold office for a period exceeding six years, whether served continuously or intermittently.
  • What will also be under scrutiny is the ‘list of entities’ in which a prospective director has an interest – to ascertain if such a firm is in default or has been in default in the past decade. 

 

The negative list says that:

  1. The candidate should not be a member of the board of any bank, the RBI, financial institution (FI), insurance company or a non-operative financial holding company (NOFHC).
  2. The candidate should not be connected with hire-purchase, financing, money lending, investment, leasing and other para-banking activities. But “investors of such entities would not be disqualified for appointment as directors if they do not enjoy any managerial control in them”.
  3. No person is to be elected or re-elected to a bank board if the candidate has served as a director in the past on the board of any bank, the RBI or insurance company under any category for six years, whether continuously or intermittently.
  4. The candidate should not be engaging in the business of stock broking.
  5. The candidate should not be a member of Parliament, state legislature, municipal corporation, municipality, or other local bodies — notified area council, city council, panchayat, gram sabha or zila parishad.
  6. Other conditions are that candidate should not be a partner of a chartered accountant (CA) firm currently engaged as a statutory central auditor of any nationalised bank or State Bank of India; or when the firm is engaged as statutory branch auditor or concurrent auditor of the bank in which nomination is sought.

 

Sources: the Hindu.