PJ Nayak Committee & Mission Indradhanush

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 PJ Nayak Committee

  • In recent years, the Public Sector banks have been suffering with multiple problems of non-performing assets (NPAs), large over-dues; competition, performance, political pressures and so on.
  • In this context, the former RBI governor Raghuram Rajan had constituted the P.J. Nayak committee in January 2
  • The core terms of reference for the committee were based on governance, management and operational issues in the public sector banks.
The committee found that,
  • the key “governance” issues include the composition and functioning of the board;
  • the key management issue is selection of the CEO; and
  • the key operational issues are handling the bad loans and infusion of capital in banks.
The key recommendations are as follows:
  • The PSBs must have independent directors Since the private banks do better when it comes to independent directors, the public sector banks also must have “independent directors”. These independent directors should be elected by the shareholders.
  • The parliament must repeal the old laws The committee recommended repealing the Bank Nationalisation Acts of 1969 and 1980, the State Bank of India Act, and SBI (Subsidiary Banks) Act.
  • The Government share should come below 50%.
  • To reduce the government’s shareholding in banks to less than 50 per cent in order to provide a level playing field to public and private sector banks.
  • The committee recommended that the Bank Board Bureau (BBB), which will decide on management and board-level appointments in public sector banks should only comprise of senior bankers, with no government involvement in
  • BBB should be free of government interference
Mission Indradhanush
(Seven Steps to Solve Bank Crisis)
  • Mission Indradhanush is a 7 pronged plan launched by Government of India to resolve issues faced by Public Sector banks.
  • It aims to revamp their functioning to enable them to compete with Private Sector banks.


Components of Mission Indradhanush:
  • The 7 components of the Mission (symbolic of 7 colours of the rainbow) plan to address the challenges faced by the Public Sector Banks.
  • The 7 components include:
Appointments:
  • Besides induction of talent from the Private Sector into the public banks, separation of the posts of Chief Executive Officer and the Managing Director, in order to check the excessive concentration of power and smooth functioning of the banks.
Bank Boards Bureau:
  • The appointments Board of the Public Sector Banks would be replaced by the Bank Boards Bureau (BBB). – Appointment of CEO, Managing Director.
  • Advice would be rendered to the banks in the matters of raising funds, mergers and acquisitions etc… by the BBB.
  • The BBB separates the functioning of the PSBs from the government by acting as a middleman.
Capitalisation:
  • Due to the high NPAs and the need to meet the provisions of the Basel III norms, capitalization of banks by inducing Rs. 70000 crores were planned.
De-stressing
(Starting process to solve Insolvency & Bankruptcy)
  • Solving issues arising in the infrastructure sector in order to check the stressed assets in the banks by strengthening the asset reconstruction companies. Development of a vibrant debt market for PSBs.
Empowerment:
  • Providing greater flexibility and autonomy to PSBs in hiring manpower.
Framework of Accountability:
The assessment of the banks would be based on a few key performance indicators. It would be inclusive of
  • Quantitative Parameters such as Non-Performing Assets Management, growth, diversification, return on capital, financial inclusion and
  • Qualitative Parameters such as steps taken in improving asset quality, human resources initiatives etc.
Governance Reforms:
  • Banker’s Retreat or the Gyan Sangam conferences between the bankers and the government officials for resolving the banking sector issues and deciding the future course of action.
Bank Board Bureau
  • BBB is super authority (autonomous body) of eminent professionals and officials for public sector banks (PSBs).
  • It was announced by Union Government in August 2015 as part of seven point Indradhanush Mission to revamp PSBs and started functioning in April 2016.
  • It had replaced Appointments Board of Government.
Functions
  • Give recommendations for appointment of full-time Directors as well as non-Executive Chairman of PSBs.
  • Give advice to PSBs in developing differentiated strategies for raising funds through innovative financial methods and instruments and to deal with issues of stressed assets.
  • Guide banks on mergers and consolidations and governance issues to address bad loans problem among other issues.
  • Composition: BBB comprises of three ex-officio members and three expert members, two of which are from private sector in addition to Chairman.
  • Financial services secretary, deputy governor of the Reserve Bank of India and secretary- public enterprises are BBB’s ex-officio members.

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