The Government has down the roadmap for strengthening corporate governance at public sector banks. Finance Minister Nirmala Sitharaman today announced that banks would now be allowed to recruit chief risk officers from market at market-linked compensation. The bank boards can also decide a system of individual development plans for all senior executive positions.
To empower the PSB boards further, Sitharaman announced that the board committee of PSBs can appraise the performance of general manager and above ranking officers. The risk committee also has been given more powers and the right to veto decisions of the senior management.
To strengthen the board committee system, the finance minister 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.
Appointing a risk officer who can be selected from the private sector with market based compensation is important because if public sector banks have to link their lending rates with market rates, then it is very important to hedge that risk. One will have to see if the board strengthening is observed in spirit as well.