Current Affairs

RBI ‘Fit and Proper’ Criteria for Elected Directors of PSB

The Reserve Bank of India tightened rules for elected directors on the boards of public sector banks, responding to
criticism that boards of these lenders failed to prevent a build-up of bad loans in the previous lending cycle.
rbi-fit-and-proper

Process of Electing Directors

  • All the banks are required to constitute a Nomination and Remuneration Committee consisting of a minimum of three non-executive directors, of which not less than one-half shall be independent directors.
  • The committee should include at least one member from the risk-management committee of the board to establish ‘fit & proper’ status of applicants.
  • The Government of India nominee director and the nominee director on behalf of the RBI shall not be part of the committee.
  • The non-executive chairperson of the bank may be appointed as a member of the committee but shall not chair the committee.

Criteria

The Committee shall determine the 'fit and proper' status of the proposed candidates based on the broad criteria mentioned hereunder:
(i) Age – The candidate’s age should be between 35 to 67 years as on the cut-off date fixed for submission of nominations for election.
  (ii) Educational qualification – The candidate should at least be a graduate.
  (iii) Experience and field of expertise – The candidate shall have special knowledge or practical experience in respect of one or more part of banking.

Disqualifications: 

  • The candidate should not be a member of the Board of any bank or the Reserve Bank or a Financial Institution (FI) or an Insurance Company or a NOFHC holding any other bank.
  • A person connected with hire purchase, financing, money lending, investment, leasing and other para banking activities shall not be considered for appointment as elected director on the board of a PSB.
  • No person may be elected/ re-elected on the Board of a bank if he/she has served as director in the past on the board of any bank/FI/RBI/Insurance Company under any category for six years, whether continuously or intermittently.
  • The candidate should not be engaging in the business of stock broking.
  • The candidate should not be holding the position of a Member of Parliament or State Legislature or Municipal Corporation or Municipality or other local bodies.
  • The candidate should not be acting as a partner of a Chartered Accountant firm which is currently engaged as a Statutory Central Auditor of any nationalised bank or State Bank of India.

Tenure

  • An elected director shall hold office for three years and shall be eligible for re-election: Provided that no such director shall hold office for a period exceeding six years, whether served continuously or intermittently.

Professional Restrictions –

  1. The candidate should neither have any business connection (including legal services, advisory services etc.) with the concerned bank nor should be engaged in activities which might result in a conflict of business interests with that bank.
  2. The candidate should not be having any professional relationship with a bank

Sources

RBI.org.in (Full master circular link)
RBI ‘Fit and Proper’ Criteria for Elected Directors of PSB RBI ‘Fit and Proper’ Criteria for Elected Directors of PSB Reviewed by Ramandeep Singh on August 05, 2019 Rating: 5

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