COMMITTEES

The Committee to Review Governance of Boards of Banks in India, colloquially known as the P. J. Nayak Committee, was instituted by the Reserve Bank of India (RBI) in January 2014. P. J. Nayak, the former CEO and chairman of Axis Bank, chaired this committee. The primary objective was to evaluate the governance structures of banks in India, with a specific focus on public sector banks (PSBs).

The committee had a comprehensive mandate, encompassing an examination of the board structures and committee compositions of PSBs, the operational aspects of PSB boards, adherence to RBI regulatory guidelines on bank ownership, ownership concentration, and board concentration, as well as the compensation of PSB board members.

In May 2014, the committee submitted its report to the RBI, proposing several recommendations, which included augmenting the role of independent directors, fortifying the risk management frameworks of PSBs, enhancing transparency and accountability, diminishing the government's ownership stake in PSBs, and refining the compensation structure for board directors.

Numerous recommendations of the P. J. Nayak Committee have been implemented by the RBI. Notable changes include the issuance of new guidelines pertaining to the composition of board committees, the role of independent directors, and the risk management frameworks of PSBs. Furthermore, efforts have been made to decrease the government's ownership stake in PSBs, and improvements have been introduced in the compensation structure for board directors.

The impact of the P. J. Nayak Committee's report on the governance of banks in India has been substantial. Independent directors in PSBs have gained increased powers and numbers, bolstering the independence of PSB boards. Risk management has seen improvements through the establishment of independent risk management committees and the adoption of standardized risk management practices. Transparency and accountability have been enhanced with PSBs now required to disclose more information about their governance practices and performance. The reduction of the government's ownership stake in PSBs, achieved through share sales to private investors, has been a key accomplishment. The committee has also contributed to refining the compensation structure for board directors by linking it to the performance of the bank.

The work of the P. J. Nayak Committee stands as a catalyst for making banks in India more resilient and better prepared to face financial shocks. Its recommendations have not only elevated the quality of governance and risk management in the Indian banking sector but have also served as a benchmark for other banks in the country.

Deepak Mohanty Committee Report on Medium-term

The Deepak Mohanty Committee submitted its report on the Medium-term Path on Financial Inclusion to the Reserve Bank of India (RBI) in December 2015. The committee was assigned the responsibility of assessing the existing financial inclusion policy and devising a five-year (medium-term) action plan.

The report put forth several recommendations, including:

1. Enhancing Government Social Cash Transfer: Suggesting an increase in government social cash transfers to the impoverished, the report proposed that this measure could elevate disposable income, encouraging greater utilization of financial services.

2. Sukanya Shiksha Scheme: Recommending a special drive by banks to facilitate account openings for females in the lower-income bracket under the Sukanya Shiksha Scheme, aimed at providing financial aid for the education of girl children.

3. Aadhaar-linked Credit Account: Proposing the linkage of Aadhaar to individual credit accounts as a unique biometric identifier, the report aimed to reduce credit costs and enhance accessibility for the economically disadvantaged.

4. Promotion of Digital Payments: Advocating for the promotion of digital payments through various means, such as offering incentives to consumers and merchants, to drive the adoption of digital financial transactions.

5. Infrastructure Strengthening for Financial Inclusion: Recommending investments by the government and banks to fortify the infrastructure for financial inclusion, including the deployment of ATMs and Point of Sale (POS) terminals in rural areas.

The RBI has implemented several of the Deepak Mohanty Committee's recommendations. For instance, guidelines have been issued to link Aadhaar to credit accounts and promote digital payments. Additionally, financial assistance has been extended to banks for establishing ATMs and POS terminals in rural areas.

The impact of the Deepak Mohanty Committee Report on financial inclusion in India has been substantial. The recommendations have contributed to an increase in the accessibility and affordability of financial services for the underprivileged, thereby expanding the reach of financial inclusion.

Key achievements stemming from the committee's recommendations include a significant rise in the number of bank accounts, an increased adoption of digital payments, a reduction in the cost of credit for certain borrowers, and a decline in the reliance on informal financial services.

The Deepak Mohanty Committee Report has played a pivotal role in positioning financial inclusion as a central focus for both the Indian government and the RBI. The ongoing implementation of its recommendations is instrumental in shaping a more inclusive financial system in India, benefiting millions of individuals

Narasimham Committee Report on Banking Sector

The Narasimham Committee Reports refer to two significant reports on the banking sector in India, both chaired by M. Narasimham, a former Governor of the Reserve Bank of India (RBI) and a renowned economist. These reports, commonly known as the Narasimham Committee I (1991) and Narasimham Committee II (1998), played a crucial role in shaping the trajectory of banking reforms in India.

1. Narasimham Committee I (1991):

   • Background: The first Narasimham Committee was appointed in August 1991 against the backdrop of economic reforms initiated in the country.
   • Objectives: The committee was tasked with reviewing the financial system, including the banking sector, and recommending reforms to enhance efficiency, competitiveness, and stability.
   • Key Recommendations:
     • Capital Adequacy: Emphasized the importance of maintaining adequate capital adequacy ratios to ensure the soundness of banks.
     • Reducing Statutory Pre-emptions: Recommended a phased reduction in the statutory liquidity ratio (SLR) and cash reserve ratio (CRR) to enhance the lendable resources of banks.
     • Entry of Private Banks: Advocated for the entry of new private sector banks to introduce competition and improve efficiency.
     • Priority Sector Lending: Recommended a gradual reduction in directed lending, with a focus on improving the efficiency of credit delivery.

2. Narasimham Committee II (1998):

   • Background: The second Narasimham Committee was formed to assess the progress of reforms and suggest further measures.
   • Objectives: The committee aimed to provide a roadmap for the second generation of banking sector reforms in India.
   • Key Recommendations:
     • Recapitalization of Banks: Advocated for recapitalization of public sector banks to strengthen their balance sheets and improve their ability to meet regulatory requirements.
     • Asset Reconstruction Companies (ARCs): Recommended the establishment of ARCs to address the issue of non-performing assets (NPAs) in the banking sector.
     • Governance and Autonomy: Stressed the need for better governance in public sector banks and suggested measures to enhance their autonomy.
     • Reducing Government Ownership: Suggested a reduction in the government's ownership in public sector banks to below 50% while retaining at least 33%.

These committee reports laid the foundation for extensive banking sector reforms in India, leading to the liberalization and modernization of the financial system. The recommendations were instrumental in shaping policies that aimed at strengthening banks, improving their efficiency, and fostering a more competitive and resilient banking sector.

Uday Kotak Committee on Corporate Governance

The Securities and Exchange Board of India (SEBI) established the Uday Kotak Committee on Corporate Governance in June 2017 with the aim of reviewing and suggesting modifications to the prevailing corporate governance framework in India. Uday Kotak, the Executive Vice Chairman and Managing Director of Kotak Mahindra Bank, chaired the committee.

The committee presented its findings to SEBI in October 2017, offering several recommendations, including:

1. Empowering Independent Directors: The committee proposed granting additional powers and responsibilities to independent directors, such as the authority to appoint and dismiss the CEO and to approve significant transactions.

2. Enhancing Risk Management Practices: A key recommendation involved companies bolstering their risk management frameworks by establishing independent risk management committees and adopting standardized risk management practices.

3. Augmenting Transparency and Disclosure: The committee suggested companies increase the disclosure of information concerning their governance practices and performance to enhance transparency.

4. Fostering Shareholder Activism: Recommendations included SEBI taking measures to encourage shareholder activism, such as simplifying the process for shareholders to nominate directors and propose resolutions for shareholder votes.

SEBI has implemented several recommendations from the Uday Kotak Committee. For instance, new guidelines have been issued pertaining to the composition of board committees, the role of independent directors, and the risk management frameworks of listed companies. Efforts have also been made to bolster shareholder activism, including a reduction in the minimum shareholding required for nominating directors and proposing resolutions for shareholder votes.

The impact of the Uday Kotak Committee Report on corporate governance in India has been substantial. The committee's suggestions have played a pivotal role in enhancing the role of independent directors, fortifying the risk management landscape, and fostering greater transparency and disclosure. Additionally, the committee's recommendations have contributed to the growth of shareholder activism.

Key achievements stemming from the Uday Kotak Committee's efforts include a noticeable increase in the number of independent directors on the boards of listed companies, the adoption of more robust risk management frameworks, heightened disclosure of information about governance practices and performance by companies, and an upsurge in shareholder activism.

The Uday Kotak Committee Report has significantly contributed to fortifying and bringing transparency to corporate governance in India. The recommendations serve to create a more conducive environment for businesses to operate and provide investors with a solid foundation for making informed investment decisions.

Nachiket Mor Committee

The Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, commonly referred to as the Nachiket Mor Committee, was instituted by the Reserve Bank of India (RBI) in September 2013. Its primary objective was to assess and enhance the prevailing financial inclusion framework in India.

The committee submitted its findings to the RBI in January 2014, presenting a set of recommendations that included:

1. Establishing a New Financial Inclusion Authority: The report proposed the creation of a dedicated financial inclusion authority to supervise and coordinate the implementation of policies in this domain.

2. Creating a Unified Financial Services Delivery Platform: The committee suggested the establishment of a unified financial services delivery platform to serve as a one-stop solution for small businesses and low-income households.

3. Regulating Non-Banking Financial Companies (NBFCs) Effectively: Recommendations urged the RBI to enhance the regulation of NBFCs, especially those engaged in providing microfinance and other financial services to small businesses and low-income households.

4. Promoting Digital Payments: Advocacy for the promotion of digital payments through various measures, such as incentivizing consumers and merchants, was a key aspect of the report.

5. Strengthening Financial Literacy: The committee emphasized the need for the government and RBI to take measures to fortify the financial literacy of small businesses and low-income households.

Several of the Nachiket Mor Committee's recommendations have been implemented by the RBI. This includes the establishment of a new financial inclusion department and the issuance of guidelines for the creation of a unified financial services delivery platform. Additionally, steps have been taken to enhance the effective regulation of NBFCs and promote digital payments.

The impact of the Nachiket Mor Committee Report on financial inclusion in India has been substantial. Noteworthy achievements resulting from the report's recommendations include a significant increase in the number of bank accounts, a notable rise in the adoption of digital payments, a decrease in the cost of financial services for certain borrowers, a reduction in the reliance on informal financial services, and an improvement in the financial literacy of small businesses and low-income households.

The Nachiket Mor Committee Report has played a pivotal role in making financial inclusion a central focus for the Indian government and the RBI. The ongoing implementation of its recommendations is instrumental in fostering a more inclusive financial system in India, benefiting millions of individuals.