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RBI Governor says: Split the posts of Chairman and CEO of banks

Splitting the Posts of Chairman and CEO of Banks
D Subbarao, Reserve Bank of India Governor on Splitting the Posts of Chairman and CEO of Banks:

Splitting the posts of the Chairman and the CEO of banks is another issue that has generated a contentious debate. The Ganguly Committee appointed by the Reserve Bank had recommended that the posts of the chairman of the board and the CEO of the bank should be bifurcated. The logic is that such a bifurcation of leadership of the board from the day to day running of the business will bring about more focus and vision as also the necessary thrust to the functioning of the top management of the bank. It will also provide effective checks and balances.

The Reserve Bank implemented the Ganguly Committee recommendations in all the private sector banks in 2007. Experience shows that this arrangement has worked well. In fact, the Ganguly Committee recommendation to this effect has been echoed by the Basel Committee on Banking Supervision (BCBS) in its document entitled, 'Principles for Enhancing Corporate Governance" which was put out last year.

Let me quote briefly from the document. It says, “to achieve appropriate checks and balances, an increasing number of banks require the chair of the board to be a non-executive, except where otherwise required by law. Where a bank does not have this separation and particularly where the roles of the chair of the board and Chief Executive Officer (CEO) are vested in the same person, it is important for the bank to have measures in place to minimize the impact on the bank"s checks and balances of such a situation (such as, for example, by having a lead board member, senior independent board member or a similar position)."

Given our own positive experience as well as the global endorsement for this position, the question is whether we should extend the principle of separation of the posts of chairman of the board and CEO to public sector banks as well. An important criterion for deciding on this will be to what extent we will be able to lay down and enforce strict eligibility criteria for the position of the chairman of the board of a public sector bank. We will discuss this issue with the Government. Meanwhile, it will be useful if there is some debate on this issue.

Story first published: Tuesday, August 23, 2011, 15:57 [IST]
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