In nationalised banks, the government owns more than 50% of the shares, which gives it majority voting rights. Because of this, the government can interfere in the boards of such banks and appoint inefficient people to the boards. That is, the appointment of the members might not always be based on merit. This will lead to overall efficiency and scams such as the Syndicate Bank scam.
PJ Nayak Committee Recommendations
- Repeal the Bank Nationalisation Act (1970, 1980), the SBI Act and the SBI Subsidiaries Act. This is because these acts require the government to have above 50% share in the banks.
- After the above acts are repealed, the government should set up a Bank Investment Company (BIC) as a holding company or a core investment company.
- The government to transfer its share in the banks to this BIC. Thus, the BIC would become the parent holding company of all these national banks, which would become subsidiaries. As a result of this, all the PSBs (public sector banks) would become ‘limited’ banks. BIC will be autonomous and have the power to appoint the Board of Directors and make other policy decisions.
- Until the BIC is formed, a temporary body called the Bank Boards Bureau (BBB) will be formed to do the functions of the BIC. Once BIC is formed, the BBB will be dissolved.
- The BBB will advice on appointments to the board, banks’ chairman and other executive directors.
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