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Governance, Reward and Accountability Framework (GRAF): Explained

Published on Thursday, April 20, 2017


The Bank Boards Bureau (BBB) has evolved a Governance, Reward and Accountability Framework (GRAF) – an elaborative roadmap for Public Sector Banks (PSBs) to make them more competitive and to ensure that they have the ability to compete successfully against private sector banks, small finance and payments banks, foreign banks and non-banking finance companies; and to prepare them for possible mergers with each other. The roadmap was chalked out by Vinod Rai, Chairman of BBB on April 14, 2017. 

GRAF Methodology: 

GRAF will ensure that the best corporate governance practices are followed by the public sector banks while functioning strictly according to the various prevailing central laws, including the Companies Act, 2013, Banking Regulation Act, 1949, and Securities and Exchange Board of India (listing obligations and disclosure requirements) Regulations, 2015. Governance model of the public sector banks would be upgraded as recommended by the Basel Committee by incorporating a code of conduct for the bank officials, compensation reforms and rating systems. The BBB’s GRAF move comes in the context of PSBs facing challenges on various fronts, including competition from new entrants, aggressive private banks and NBFCs eating into their market share on the loans front, and continuously increasing non-performing assets (NPAs) called “Bad Loans” in the layman’s language.

Bank Boards Bureau (BBB): 

The BBB was operationalized after Finance Minister Arun Jaitley called for PSBs to be competitive, in his Budget speech of 2016-17 to make recommendations for the selection of the chiefs of PSBs and financial institutions and help them develop strategies and capital-raising plans. BBB has evolved a code of conduct and ethics that can be enforced across all PSBs to ensure the right behaviour. It has also come up with compensation reforms so that best practices can be introduced in PSBs on the lines already prevalent in Central Public Sector Enterprises. The BBB has evolved a relative performance rating system to assess the performance of PSBs, its directors and employees; and performance evaluation system based on which decision-making for the extension/termination of a whole-time director. BBB would also be advising the government on evolving training and development programmes for management personnel in PSBs and help banks develop a leadership succession plan.

Basel Committee: 

The Basel Committee on Banking Supervision (BCBS) on Global Systematically Important Banks (GSIBs) is a committee of banking supervisory authorities that was established by the central bank governors of the “Group of Ten” countries in 1974. The Group of Ten is actually made up of Eleven Industrial Countries (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States) which consult and co-operate on economic, monetary and financial matters. Basel Committee had published its assessment reports on June 16, 2015 on the implementation of liquidity coverage ratio and another risk-based capital framework for its member countries and on corporate governance principles for banks, dealing with the board’s overall responsibilities, board qualifications and composition, senior management, risk management function, compliance, internal audit and compensation.

Public Sector Banks (PSBs): 

PSBs are banks where a majority stake (i.e. more than 50%) is held by the Union Government. The shares of these banks are listed on stock exchanges. Currently, there are a total of 21 PSBs in India which includes 19 nationalised banks, State Bank of India (SBI) and IDBI Bank. SBI came into being as an Act passed on July 1, 1955, by the Parliament of India, named as State Bank of India Act, 1955. The Industrial Development Bank of India (IDBI) was established in 1964 under an Act of Parliament. On July 19, 1969, 14 major banks were nationalised. On April 15, 1980, another six banks were nationalised and thus raising the number of nationalised banks to 20. In 1993, New Bank of India was merged with Punjab National Bank; and now there are 19 nationalised banks.

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