In a communication to the MDs of all PSBs, the department of financial services at the finance ministry said that the government has decided to institute certain measures to improve corporate governance in banks.
The measures include the introduction of a code of conduct, a requirement that the non-official directors undergo a familiarisation of banking practices, and a peer-reviewed performance appraisal of the directors.
The finance ministry pointed out that while Sebi had a code for independent directors, which provides for their performance evaluation, the provisions do not apply to PSBs as they do not come under the Companies Act.
“While Banking Companies Act does not define independent directors, non-official directors, including non-executive chairmen, are similar,” the communication said. The performance evaluation by peers will measure the director on various parameters including avoidance of direct or indirect conflict of interest, acting according to rules and in the best interest of the bank, avoiding any gain to self or associates and maintaining confidentiality.
The code of conduct for directors lists a set of dos and don’ts. One interesting point in this is that each non-official director has to ensure that if there are any related-party transactions, these have to be adequately discussed in the board before being approved.
Other points include ensuring that the bank has a proper vigil mechanism and that the interests of a person who uses such a mechanism are not prejudicially affected on account of such use. The director also must ensure that when they have any concern about the running of the bank or any action, such actions are addressed by the board.