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Parliament passes bill strengthening corporate governance in PSBs

Written by: Staff

New Delhi, Aug 24: Parliament today passed the the Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institutions Laws (Amendment) Bill, 2006, seeking a substantial increase in corporate governance in the banking sector with the Rajya Sabha unanimously passing the legislation by voice vote.

The Bill, which was passed by the Lok Sabha yesterday, is aimed at strengthening public sector banks so that the PSBs can face mounting competition from private banks.

Replying to the debate on the bill, Finance Minister P Chidambaram said that India's banking sector is the best and one of the best regulated system in the world. He said that both the Reserve Bank of India and the government has worked together to make Indian banking system better equipped.

Clarifying that the amendments would not affect the public sector character of the government-owned banks, he said that the PSBs will continue to have a 51 per cent shareholding of the government he said.

The Minister said that as the per capita business of the PSBs have been lower than foreign and private banks, they need to take steps to remain competitive. However, there was no ban on recruitments in banks, only their nature has changed to meet specialised needs. A large number of agriculture graduates, human resource development experts and computer professionals are being appointed now instead of regular clerks, he said.

He said that the government would have right to appoint directors in the PSBs and a complicated set of guidelines have been made for the appointments and Appointments Committee of the Cabinet has to clear them. Their term could not exeed six years. RBI would also have a nominee on the board but he would not be a serving official of the central bank.

Mr Chidambaram said that under the amended bill, now the central government would have power to remove the Chairman and Managing Director of a PSB.

''But this power is conditional and could be exercised only on the recommendation of RBI and a written order has to be passed to safeguard the interest of the public,'' he added.

About the declining number of rural branches of PSBs, he said that no rural branches have been closed unless proven unviable and loss making. The marginal decrease was due to the fact that technically a rural branch is one catering to a population of below 10,000 but once the population of a place increases beyond 10,000 the branch is automatically upgraded to a semiurban branch.

Moreover, rapid urbanisation in many states have led to decline in rural branches, he pointed out.

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