A task for FM, RBI: Rid public bank boards of politicians

Written By Unknown on Rabu, 06 Agustus 2014 | 21.03

In a telling statement on the state of corporate governance that exists at some of the country's leading public-sector banks, it has been found that a number of independent directors on their boards are either politicians or their relatives, or they lack any expertise that warrants such a place.

In a telling statement on the state of corporate governance that exists at some of the country's leading public-sector banks, it has been found that a number of independent directors on their boards are either politicians or their relatives, or they lack any expertise that warrants such a place.

According a Times of India report, a number of banks have independent directors that point to a link between their jobs and their political connections.

For instance, Congress state committee members Ajay Shukla, Anusuiya Sharma and Paras Chopda serve as directors on the board of Allahabad Bank ,  Union Bank and Oriental Bank of Commerce .

Some -- such as former Congress minister Ajay Maken's chartered accountant brother Sanjay Maken (sits on the board of Indian Bank ) -- also bring to the table professional experience.

While others had no qualms in admitting that their political connections were the reasons for their appointment -- such as former hockey player Bhupinder Singh Suri (a former board member at Syndicate Bank ) who told the newspaper he landed the job on the recommendation of ex-prime minister Atal Bihari Vajpayee.

The perks for such appointments, which are supposed to be carried out after due process of diligence, are many: payments for attending board meetings, free air tickets for travelling to such meetings, etc.

Unofficially, such board members can, and have for years been known to, influence banks to facilitate lending for their relatives or favoured businessmen or to nudge them to go easy in case of defaults.

The ToI article, however, added that Finance Minister Arun Jaitley was seized of the matter and that soon steps would be taken and guidelines issued to "improve the quality" of bank boards.

Earlier this year, we had written an article , based on revelations from an ex-banker, detailing how the bank-politician nexus was at least partially behind the non-performing assets crisis facing the public sector banking sector.

In May, a committee led by former Axis Bank chief PJ Nayak had recommended several steps to improve the quality of corporate governance at public sector banks, including reducing the government's stake to below 50 percent in state banks, and had questioned the independence of so-called directors on the boards of such banks.

Allahabad Bank stock price

On August 06, 2014, Allahabad Bank closed at Rs 120.70, down Rs 2.9, or 2.35 percent. The 52-week high of the share was Rs 148.45 and the 52-week low was Rs 64.90.


The company's trailing 12-month (TTM) EPS was at Rs 16.00 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 7.54. The latest book value of the company is Rs 216.68 per share. At current value, the price-to-book value of the company is 0.56.


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