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The resignation of an ID should cause concern among investors. This is a case where the disclosure did not reveal the truth. valid reason for not pulling the plug sooner?

Context:When banks get listed, the erstwhile sole owner has to recognise that majority shareholding must not get in the way of the interests of minority shareholders. Capturing of management, and reducing Boards to rubberstamps, is not consistent with good governance.

  • The Government of India has majority shareholding in Public Sector Banks.
  • They are also represented on the Board of Directors of each bank by a serving officer of the Government.
  • In addition, Reserve Bank of India (RBI), the banking Regulator, has a representative on the Board of each Public Sector Bank.
  • Boards of Public Sector Banks comprise, inter alia, Independent Directors (IDs) representing shareholders other than the majority shareholder.
  • There have been, and continue to be, a number of instances and areas in which the Government of India, as the majority shareholder, issues directions to the managements of the banks to act in a particular manner or to desist from acting in a particular manner.
  • This includes directions as to the number of posts that may be created at senior levels, selection process for foreign postings, the setting up of ATMs and other matters which fall within the areas of responsibilities of the Board of Directors/ management.
  • In addition, considerable persuasive influence is used to push banks towards lowering the rates of interest for lending.
    Point to ponder
  • What should an ID do in the face of continuing directions to the bank from the majority shareholder, and the Board not discussing and arriving at decisions that are in the interest of all its stakeholders?