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IT IS SIGNIFICANT that the Reserve Bank of India should fully endorse the Ganguly Committee Report on the supervisory role of boards in banks and yet stop short of mandating its key recommendations. The need for filling board vacancies with strong and independent directors has never perhaps been felt more keenly than now. With the increasing trend towards reduction of government stake in boards, it is important to have competent hands who will discharge their fiduciary responsibility in letter and spirit. As banks make the transition to greater private ownership, their boards must be conscious of their responsibility of maximising the interests of all stakeholders. The RBI also has a role to play.

The Ganguly Committee has pointedly recommended that bank boards be kept free of politicians. The RBI ought to have given teeth to what has hitherto been an informal practice by making it a directive, rather than leave it to the judgment of bank boards. The damage done to cooperative banks and by extension the other banks in the system, because of political domination in them, is well known. A number of these banks in various States have folded up during the past one year. Given the unprofessional approach of many cooperative banks, it may be only a matter of time before their sins of omission and commission catch up with them. What dereliction of duty by bank boards can do was seen in the Asian currency crisis five years ago. The RBI therefore needs to move with due haste in this matter and control the damage when there is still time.

The need to do away with regulation-based representation on bank boards such as those for agriculture/SSIs/ cooperatives has also been mentioned. Even now, banks have generally observed this requirement more in the form of a token gesture to these segments. What exactly has been the contribution of these members to further the cause for which they were installed, remains unknown. Perhaps it makes sense for banks to move to need-based induction — of people with proven expertise in technology, marketing, finance, treasury, accounting — to oversee the work of bank executives and provide the strategic direction that they sorely lack. But obviously such manpower does not come cheap. The sitting fees that bank boards offer today are still a pittance for the onerous responsibility directors are saddled with. There is a need for immediate revision of sitting fees so that the best of brains can be attracted.

In this context, the Ganguly Committee has recommended a relaxation of the regulations which prohibit banks from lending to companies in which directors are interested on the grounds that it constricts the availability of qualified directors. The Committee says that as long as there is disclosure and appropriate covenants, this restriction can be removed. But this is one recommendation the RBI may avoid going along with. The theory behind maintaining an arm's length between lending and borrowing entities is still valid. Any dilution at this stage may lead to abuse of a well-intentioned move. Instead, as the Committee itself has suggested, the RBI can compile a talent pool of independent names who could then be called upon by different banks to serve on their boards.

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