NEW DELHI: The Lok Sabha on Wednesday approved, by voice vote, a Bill for according greater flexibility to the boards of public sector banks (PSBs) as also improve corporate governance standards.

The Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institutions Laws (Amendment) Bill, 2005, which was taken up for discussion on Tuesday but could not be passed owing to confusion over certain dropped amendments, envisages increase in the number of whole-time directors on PSB boards to four from two at present, and also help bring public sector banks in tune with the changing global scenario and modern business practices.

In his reply after completion of the debate on the Bill on Tuesday, the Finance Minister, P. Chidambaram, had clarified that the amendments would not affect the public sector character of the state-owned banks. "The PSBs will continue to have a 51 per cent shareholding of the Government," he said.

In this regard, Mr. Chidambaram also noted that the amendment relating to reduction of the prescribed minimum shareholding of the Centre in nationalised banks from 51 per cent to 33 per cent — as mentioned in the earlier Bill moved by the NDA Government — had been dropped. The amendments to the Bill, made in consultation with the Indian Banks Association (IBA) and the Reserve Bank of India (RBI), would strengthen the competitive edge of PSBs and lead to a vibrant banking system, he said.

The Bill, moved in the House by the Minister of State for Finance, Pawan Kumar Bansal, was aimed at amending the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, the State Bank of India Act, 1955, the State Bank (Subsidiary Banks) Act, 1959, the Deposit Insurance and Credit Guarantee Corporation Act, 1961, the Export-Import Bank of India Act, 1981 and the National Housing Bank Act, 1987.

Among its other objectives, the current Bill, as approved by the House, seeks to:

(a) Allow one to three shareholder directors on the board of nationalised banks on the basis of issued capital of the bank instead of one to six directors as per existing provisions so as to provide for a more equitable representation on the board of such banks on the basis of percentage of ownership;

(b) Confer powers upon the RBI to appoint one or more additional directors;

(c) Increase the number of whole-time directors from two to four to have more functional directors in view of expansion activities of the nationalised banks;

(d) Enable the banks to transfer the unclaimed dividends for more than seven years to Investor Education and Protection Fund established by the Centre; and

(e) Empower the Centre to supersede, on the recommendations of the RBI, the board of any nationalised bank and constitute the financial restructuring authority and appoint a chief executive officer of such bank.

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