The Hindu Business Line : Associate banks emerge as heroes of the day

Ipso facto the provisions apply to the meetings of the executive committee (EC) of the board, responsible for business and operational matters. In view of the number of such meetings, a relatively junior officer attends the EC meetings . If in his view any decision being taken in the meeting might affect the (business) interests of SBI, or he is unable to take a view, he can ask the item to be deferred or dropped from the agenda. The views of the managing director or other directors, based on their own wisdom, take a back seat.

In terms of Section 35, if a director is unable to attend an EC meeting, SBI can depute ‘any’ of its officers ‘to exercise all the functions and discharge all the duties’.

It is not uncommon that a junior officer with limited exposure to a few branches is deputed to attend some meetings. The officers normally come with a mandate to say either ‘yes’ or ‘no’. Any modifications on the spot, based on discussions in the meetings, become difficult.

Section 45 of the Act enables the parent to depute one or two persons to watch the proceedings at any meeting of the board or any committee or any other body and appoint one or more persons to observe the manner in which the ‘affairs of the bank or its officers’ are being conducted. These may appear to be mere enabling provisions, but there have been occasions when these powers have been exercised much to the discomfiture of the associate banks.

Performance

Whatever protection and guidance were sought to be made available to the associate banks by tagging them on to SBI have certainly helped them come of age. While the Union Government has pumped in thousands of crores of rupees to bail out ailing nationalised banks, it goes to the credit of the associate banks that without any financial support, either from the Union Government or SBI, they have performed well and remained healthy.

The associate banks, public financial institutions in their own right, should now be given their due place in the financial community. That the Act needed to be modified and softened to provide some respectability and autonomy to the boards to run these banks on the lines, which serve their best interests, has been ignored by both the RBI and the Government.

The views of the owner can be effectively voiced and the interests protected by properly chosen directors rather than resorting to draconian provisions. The Government could easily have raised a few thousands of crores of rupees more to take over these banks too, and give them the same treatment given to the other PSBs, including SBI. Otherwise, the concept of level playing field becomes irrelevant even for the PSBs, leave alone the industry.

The amendments carried out to remove restrictions on shareholdings, voting rights, change in face value of a share, size of authorised share capital and dilution of SBI’s stake are welcome, though delayed. These will help the associate banks to raise resources from the market, for growth and meeting capital requirements under Basel-II norms.

Section 13 of the new Act again smacks of a mechanical approach. By re-designating the MDs of associate banks as chairmen, but retaining all the other provisions of the earlier Act intact, there is no material improvement. A serious anomaly that has not been addressed is non-creation of the posts of executive directors in associate banks. All the CMDs of PSBs enjoy equal status but between the SBI and associate banks the boss-subordinate and owner-employee relationship will be perpetuated.

To emphasise this point, consider this. In the recent past, of the last four chairmen of SBI, three were picked up while serving as MD of an associate bank. A fourth, who worked as MD of an associate bank was elevated as MD of SBI and then became the Deputy Governor of the RBI. They all happened to be from SBI. None of the executives from the associate banks, who worked as MD of an associate bank with distinction, was any time considered for elevation in SBI.

With the ownership of the SBI being taken over by the Union Government and the stake in all PSBs likely to come down to 51 per cent, including the State Bank group, it would be a misnomer to categorise some PSBs as nationalised banks. All the 27 now belong to one category, the PSBs. The appointment of chairmen of the associate banks by SBI would mean deputing any officer of the group to any associate bank as chairman. The pool should be enlarged and an executive from any of the 27 PSBs could be considered for appointment as CMD of any of the PSBs. There is a serious case and urgent need to revamp the 1959 Act. The markets will also not take to the position kindly once all the associate banks go public.

(Concluded)

(The author is a former Managing Director of State Bank of Mysore and is accessible at: Murthy@mandavilli.com)

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