| Are you ' fit' enough to be abank director? |
|
New Delhi, 11 June The tussle between the two promoter families of YES Bank has brought to the fore the " fit and proper criteria" in the appointment of directors to bank boards. Rana Kapoor, YES Bank's largest shareholder and copromoter, is locked in a legal battle with co- promoters and extended family members Madhu Kapur and her daughter Shagun Kapur Gogia. While the Kapurs allege they have been denied their rightful place in the board, Kapoor has been chanting the " fit and proper" mantra. Business Standard tries to understand what is fit and what isn't. The Reserve Bank of India (RBI)' s framework of eligibility criteria for private sector banks is based on the recommendations the Ganguly group report. In 2004, RBI issued a notification that laid down specific criteria to be fulfilled by persons being appointed to the boards of private sector banks. The notification clearly put the onus of due diligence on banks. " Banks in the private sector should undertake aprocess of due diligence to determine the suitability of the person for appointment/ continuing to hold appointment as a director on the board, based on qualification, expertise, track record, integrity and other ' fit and proper' criteria. Banks should obtain necessary information and declaration from the proposed/ existing directors for the purpose in the format enclosed," it said. The declaration format provided by RBI requires a candidate to give details under four broad categories. The first section relates to personal details such as age, qualification and relevant experience. The second requires the details of " relevant relationships of the director". This could be relevant to what comes into play in the YES Bank issue. Under this head, the candidate is expected to give a list of relatives connected with the bank. The candidate also has to give details of companies/ entities in which he/ she is " interested in" or has " substantial interest". Funds and other facilities availed by these entities should also be disclosed. Under the remaining two sections, the declaration also requires disclosures of " professional achievement" and " legal proceedings". RBI has further said the process of due diligence should be undertaken by private sector banks during the appointment/ renewal of appointment. The boards of these banks should constitute nomination committees to scrutinise the declarations. Based on the information provided in the signed declaration, these committees should decide on the acceptance. When necessary, these may also make references to the appropriate authority/ persons, to ensure compliance with the requirements indicated. The 2004 notification also refers to the Ganguly group report, which says, " The candidate should normally be a graduate ( which can be relaxed while selecting directors for the categories of farmers, depositors, artisans, etc). He/ she should be between 35 and 65 years of age. He/ she should not be a Member of Parliament/ Member of Legislative Assembly/ Member of Legislative Council." The report also requires that the directors shouldn't be owners or related to the owners of a non- banking financial company. Assuming Shagun Kapur Gogia and her mother were not expressly disqualified in any of the above criteria, there is one last resort for Rana Kapoor. The Ganguly group report also provides certain directives on the composition of the board, which could have certain implications in the YES Bank case, experts say. The report says the composition of the board " should be commensurate with the business needs of the banks", in the context of banking becoming more complex and competitive. "There is an urgent need for making the boards of banks more contemporarily professional by inducting technical and specially qualified personnel. Efforts should be aimed at bringing about a blend of ' historical skills' set, i. e. regulationbased representation of sectors such as agriculture, small- scale industries, cooperation, etc, and the ' new skills' set, i. e. needbased representation of skills such as marketing, technology and systems, risk management, strategic planning, treasury operations, credit recovery, etc." The Ganguly panel said, " The above suggestions may be kept in view while electing/ co- opting directors to their boards." What are the skill sets of Madhu Kapur and Shagun Kapur Gogia? Did the YES Bank board already have people with these skill sets and, as a result, couldn't have more? The YES Bank family tussle puts focus on RBI guidelines on appointment of directors The Ganguly group report also provides certain directives on the composition of the board, which could have certain implications in the YES Bank case |
| Sebi seeks to protect clearing corporations from court orders |
|
Mumbai, 11 June The Securities and Exchange Board of India ( Sebi) is looking to bring in rules that will strengthen the functioning of clearing corporations. Among other things, Sebi is looking to protect them from court orders which could come in the way of their functions, said a senior Sebi official. A clearing corporation acts as the counter- party to all trades, like a buyer to every seller and seller to every buyer. When trades go through a clearing corporation, the the market is protected from a situation where transactions fail to go through because the entity at the other end has defaulted. The regulator is now looking to empower the clearing corporation with powers to carry out the process of settlement of trades without interference. It has been exploring regulatory changes that could effect such a move, said the official cited above. "One needs to protect clearing entities from court orders and other actions. This requires a change in the Act, which can take a long time. Meanwhile, we are looking to change other regulations which could help such entities," said the person. Clearing corporations are governed by the Securities Contracts ( Regulation) Act, 1956. Any move to empower clearing corporations with more powers would require changes to the Act. This can be along drawn procedure. Sebi's efforts at increasing its own powers has been pending since at least 2009 because it requires changes to the Sebi Act as well. The Sebi official said the move to empower clearing corporations is also an effort to bring India in line with global practices. The Committee on Payment and Settlement Systems ( CPSS), a forum for central bankers and a technical committee of the International Organization of Securities Commissions (IOSCO, an international body of regulatory organisations like Sebi) has been reviewing the standards for financial market infrastructure ( FMI) institutions such as clearing corporations. The CPSSIOSCO came out with a report on norms for institutions, such as clearing entities in April 2012, in which it suggested that such entities should enjoy a level of protection from having their process halted by a judicial order such as a stay. "There should be a high degree of certainty that actions taken by the FMI under such rules and procedures will not be voided, reversed or subject to stays," said the CPSS- IOSCO report. Sebi is also looking at the principle of assets held by the clearing corporation being 'bankruptcy remote' or unaffected if the concerned entity goes bankrupt, said the Sebi official. Sebi had come out with a discussion paper in April 2013, which looked at managing risks in clearing corporations. The paper proposed steps, including incentivising Internet- based trading models, ring fencing the client's collateral from the broker and reducing the time for settling trades ( making payments and exchanging securities ) to one day or moving to the so- called 'T+ 1 settlement' as a measure to reduce overall risk in the system. "The present system in India, as it has evolved, still has various unaddressed risks and there is scope to take further steps to mitigate them," the report noted. CLEARING THE AIR |A clearing corporation acts as the counter- party to all trades, like a buyer to every seller and seller to every buyer |Sebi to empower the clearing corporation with powers to carry out the process of settlement of trades without interference |Sebi is exploring regulatory changes that could effect such a move |Clearing corporations are currently governed by the Securities Contracts (Regulation) Act, 1956 |
--
Company Secretary, Chennai
This mail and its attachments (if any) are confidential information intended for persons to whom the email is planned for delivery by the sender. If you have received this mail in error please notify the sender of the error by forwarding the email and its attachments (if any) and then deleting the mail received in error and the relevant email trail in this connection without making any copies or taking any prints.
__._,_.___
No comments:
Post a Comment