M Veerappa Moily Suggested to Increasing the Retirement Age of Chiefs of Public Sector Banks to 70 Years.

Parliamentary board asks RBI to analysis rules on capital needs for banks.
M Veerappa Moily Suggested to Increasing the Retirement Age of Chiefs of Public Sector Banks to 70 Years.

The group headed by former Union Minister M Veerappa Moily suggested raising the retirement age of chiefs of public sector banks to 70 years.

A parliamentary panel has asked the Reserve Bank to relieve capital adequacy norms for banks, review supervisory framework PCA, and urged the government to set up a committee to look into issues about answerability of the central bank as a supervisory body.

The standing committee on finance also asked the RBI to appraise the effectiveness of its own guidelines on dealing with frauds.

 Besides, the committee headed by veteran Congress leader and former Union Minister M Veerappa Moily also recommended increasing the retirement age of chiefs of public sector banks to 70 years and effect proper manpower planning and HR development strategies in PSBs.

The report of the committee was nominated in Parliament on Thursday.

Questioning the RBI's decision to keep capital sufficiency norms higher than prescribed under the global framework of Basel III, the lawmakers said the central bank has restricted lending capacity of banks and amplified the burden on the government for a recapitalization of PSBs.

The committee said it has been known that while Basel framework requires an application of capital standards to globally active banks of the 21 PSBs, nine PSBs are not globally active as also most of the older private banks are also not globally active.

In respect of the nine PSBs, (Central Bank of India, Andhra Bank, OBC, Corporation Bank, Vijaya Bank, Bank of Maharashtra, United Bank of India, Dena Bank and Punjab and Sind Bank) which had collective risk-weighted assets of just about Rs.9.93 lakh crore as of March 2018, this translates into additional capital requirement of around Rs 35,000 crore.

"Such stringent norms predetermined by RBI for our banks…is impractical and unnecessary," said the report.

The parliamentary panel said the predetermined supplementary capital requirement for these nine banks (who are already under RBI's PCA framework with lending restrictions), if waive, will release huge funds to the extent of about Rs 5.34 lakh crore, instead of 51 percent growth in the loan book of these banks.

This will lead to a generation of additional interest income of about Rs 50,000 crore annually, "which will obviate the need" for additional capital infusion into these banks through our fiscally unnatural national budget.

The committee further notes that the RBI has been retrenchment the screws on the operations of 11 PSBs including their lending and hiring activities under the Prompt Corrective Action (PCA) framework.

The RBI's revised PCA framework, implemented in 2017, and monitors and classifies banks into three risk parameter based on their capital adequacy, net non-performing assets (NPAs), return on assets and leverage.

"The committee would, therefore, expect the RBI to provide a rational and positive roadmap for each of these 11 banks to come out of the severe PCA framework within a predetermined timeframe so that they can resume their normal banking operations," the report said.

The panel "anxious" that the PCA framework may end up bringing more and more PSBs under its ambit.

"The Committee would, therefore, urge both the RBI and the government to continuously monitor the circumstances for each of these banks and relax/review the PCA framework…" it said.

With regards to spurt in frauds in the banking system, the panel asked the RBI to look into and review the role and efficiency of various types of an audit conducted in banks and its incapability so far to alleviate the occurrence of frauds in banks.

"The RBI should also evaluate the efficiency of their own strategy of May 7, 2015, providing an arrangement for dealing with loan frauds," it added.

On the issue of RBI seeking more powers, the panel said has advocated that the government should constitute a high-powered committee to evaluate the role, powers, and authority of RBI in "its entirety", while also appraise the economic collision of the various NPA declaration guidelines/schemes formulated by RBI from time to time.

"The planned Committee should look into those provisions of the RBI Act, Banking (Regulation) Act and another applicable statute with a view to ensuring the accountability of RBI as the regulator of the banking sector including the matter of having RBI nominees on the Boards of banks," the panel said.

The panel also optional that a three-month overlap may be provided at a CEO level to facilitate a smooth transition in PSBs.

Further, with a view to utilizing the knowledge of senior bankers, the retirement age of CEOs of PSBs can be raised to 70 years as in the case of their private sector counterparts.

The committee also desired that RBI as a supervisor should consider separate treatment of NPAs due to willful defaulters and those where defaults are because of unconnected reasons such as annulment of coal blocks and policy intervention by the judiciary and general policy changes in various sectors such as coal, power, steel, telecom, roads.

For this purpose, the concerned RBI guidelines/circulars should be reviewed, said the panel's report.

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