Question map
The Chairmen of public sector banks are selected by the
Explanation
The correct answer is option A. The Banks Board Bureau (BBB) was set up in 2016 as an autonomous recommendatory body to improve the governance of Public Sector Banks (PSBs)[1], and the main function of BBB is to recommend the name of Heads of PSBs and financial institutions[1]. The Banks Board Bureau (BBB) is the body entrusted with the task of the selection of the chiefs of public sector banks and insurance companies[2]. This represented a shift from the existing system where appointments for top jobs at public sector banks were made through an appointments committee led by the Reserve Bank of India Governor[3]. Therefore, the RBI (option B) no longer has this role, while the Union Ministry of Finance (option C) and the management of the concerned bank (option D) do not directly select the chairmen of PSBs.
Sources- [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Banks Board Bureau > p. 191
- [2] https://indianexpress.com/article/business/banking-and-finance/dinesh-khara-to-take-over-as-sbi-chairman-today-6705818/
- [3] https://indianexpress.com/article/business/business-others/bank-board-bureau-to-consist-of-experts-one-finmin-representative/
PROVENANCE & STUDY PATTERN
Full viewThis is a classic 'Reform Implementation' question. It rewards aspirants who track not just the problem (NPAs/Governance) but the specific institutional solution (BBB/Indradhanush) implemented by the government. It is a direct lift from standard economy chapters on Banking Reforms.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: Are the Chairmen of public sector banks in India selected by the Banks Board Bureau?
- Statement 2: Are the Chairmen of public sector banks in India selected by the Reserve Bank of India?
- Statement 3: Are the Chairmen of public sector banks in India selected by the Union Ministry of Finance?
- Statement 4: Are the Chairmen of public sector banks in India selected by the management of the concerned bank?
- Describes Banks Board Bureau (BBB) as an autonomous recommendatory body set up in 2016 to improve PSB governance.
- Explicitly states the main function of BBB is to recommend the name of Heads of PSBs and financial institutions.
- Recommendation of 'Heads' directly encompasses bank Chairmen.
- States that BBB will select and appoint directors/top management in public sector banks and other public financial institutions.
- Frames BBB as the body responsible for choosing bank leadership, even if established initially by executive order.
- Explicitly states how appointments for top jobs at public sector banks are made.
- Names the appointments committee as being led by the Reserve Bank of India Governor, tying selection to the RBI.
- Describes interviews for managing directors and chief executives being held at the Reserve Bank office.
- Supports RBI's direct involvement in selecting senior leadership of public sector banks.
Says the Acts creating PSBs require Govt of India to have majority shareholding and empower the Govt to appoint Board of Directors and be involved in PSB decision making.
A student could infer that appointment of top management (chairmen) is likely a government prerogative rather than an RBI function and check government appointment rules for PSBs.
Defines Public Sector Banks as banks owned (>51%) by Central/State governments (e.g., SBI, PNB).
Knowing majority government ownership, a student could reasonably expect key appointments to follow government control and verify which body (Govt vs RBI) formally appoints executives.
Lists RBI regulatory powers over commercial banks (liquidity, branch expansion, merger, winding-up) but does not list appointment of bank chairmen.
A student can contrast RBI's enumerated regulatory functions with the absence of appointment power here, prompting checking which institution holds appointment authority.
Notes proposals for greater autonomy for public sector banks to function professionally, implying governance/appointment practices have been a subject of reform debates.
A student might extend this to investigate whether appointment processes were recommended to shift from political/government control toward more independent selection (and who currently appoints).
States RBI appoints agent banks for government business and that scheduled public sector banks handled government-related business, showing RBI operational roles vis-à-vis banks but in an agency capacity.
A student could use this to distinguish operational/ regulatory interactions of the RBI with banks from governance/appointment roles, then check which entity appoints chairmen.
- Explicitly states who selected a public sector bank chairman (SBI) — not the Finance Ministry but the Banks Board Bureau (BBB).
- Shows that selection of chiefs of public sector banks is a task entrusted to BBB, indicating another body performs selection.
- Describes the Appointments Committee of the Cabinet (ACC) creating the Financial Services Institutions Bureau (FSIB).
- States the FSIB 'will now select the chiefs of public sector banks and insurance companies', indicating selection is by FSIB rather than directly by the Finance Ministry.
- Explains the intended role of the Bank Board Bureau: 'The Bureau will search and select heads of public sector banks...'
- Indicates the selection function is assigned to an independent bureau rather than being performed directly by the Finance Ministry.
States that PSBs are majority‑owned by the Government of India and that this empowers the Government to appoint Boards of Directors and be involved in PSB decision‑making.
A student could combine this with the basic fact that chairmen are chosen by boards/governments to infer the central government (and thus the Finance Ministry) likely has appointing influence and then check official appointment procedures.
Defines Public Sector Banks as banks owned by Central or State governments (government holding >51%).
Knowing the government is the majority owner lets a student reasonably suspect government ministries play a key role in senior appointments and then verify which ministry handles PSB appointments.
Notes that capital infusion into PSBs has come from the Government of India, indicating continued government financial control over PSBs.
A student could use this pattern of financial control to argue the government has leverage over governance (including senior posts) and then look up the formal appointment route (e.g., ministry or board committees).
Shows the Finance Minister chairs a major apex financial council and that senior financial regulators are linked to the Ministry of Finance.
A student might extend this institutional link to suspect the Finance Ministry plays a coordinating/nomination role for key appointments in the financial sector and then confirm the specific mechanism for PSB chair appointments.
- Describes establishment of institutional body (BIC/BBB) that will select and appoint banks' directors and top management.
- Explicitly states BBB will select and appoint directors/top management in public sector banks (i.e., appointments are external, not by the bank's own management).
- Notes PSB enabling Acts give the Government majority shareholding and voting power in PSBs.
- States this majority empowers the Government to appoint Board of Directors and be involved in PSB decision-making (appointment authority lies with Government).
- Explains RBI's powers are curtailed regarding PSBs and that RBI cannot remove directors and management or supersede PSB boards.
- By showing RBI does not control these appointments/removals, it corroborates that appointment authority is handled outside the bank's own management (by Government/appointed bodies).
- [THE VERDICT]: Sitter. Directly covered in standard texts (Vivek Singh Ch 3, Nitin Singhania Ch 7) under the 'Indradhanush Plan' and P.J. Nayak Committee.
- [THE CONCEPTUAL TRIGGER]: Banking Sector Reforms > The 'Indradhanush' Strategy (2015) > Governance reforms in Public Sector Banks (PSBs).
- [THE HORIZONTAL EXPANSION]: (1) Update: BBB was replaced by **FSIB (Financial Services Institutions Bureau)** in 2022. (2) Scope: FSIB selects heads for PSBs AND Public Sector Insurance Companies. (3) Private Banks: MD/CEO appointed by the Bank's Board but requires **RBI approval** (Banking Regulation Act). (4) Indradhanush 7 Prongs: Appointments, BBB, Capitalization, De-stressing, Empowerment, Framework, Governance.
- [THE STRATEGIC METACOGNITION]: When a committee (P.J. Nayak) recommends a body to fix 'politicization,' map the timeline: Old Method (Govt/RBI) -> Recommendation -> New Body (BBB/FSIB). Always check if the new body is Statutory or Executive (BBB was not statutory).
Banks Board Bureau recommends and is tasked with selecting heads and top management of public sector banks and related financial institutions.
High-yield for questions on banking governance and institutional reforms; links P.J. Nayak Committee recommendations to practical appointment mechanisms and helps answer questions on who fills senior PSB posts and how reforms altered that process.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Banks Board Bureau > p. 191
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > P J NAYAK Committee > p. 129
Majority government shareholding gives the government power to appoint boards and influence management of public sector banks.
Important for understanding why reform measures like BBB were introduced to reduce politicised appointments; connects to topics on bank autonomy, regulation, and the limits of RBI powers over PSBs.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > P J NAYAK Committee > p. 128
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Commercial Banks > p. 66
Public Sector Banks have more than 51% government ownership, which establishes government control over their governance.
High-yield for questions on bank governance and appointment authority: knowing ownership clarifies which institution (government vs regulator) holds appointment power. This connects to public administration, finance and statutory frameworks for banks and helps answer questions on who appoints boards and top executives.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 4. Co-operative Banks: > p. 82
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > P J NAYAK Committee > p. 128
RBI is the central bank with statutory functions and operational roles (including appointing agent banks), but statutory remit differs from ownership/appointment rights over PSB leadership.
Crucial for distinguishing regulatory powers from ownership/control powers in banking questions. Mastering RBI's institutional role helps in questions about regulation, supervision, and administrative limits of the central bank versus the government.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.14 RBI and its Functions > p. 65
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 4. Management of Foreign Exchange Reserves > p. 68
Reform proposals have emphasised greater autonomy for PSBs to reduce direct government influence in their functioning and appointments.
Important for tackling policy-reform and governance questions in the syllabus. Understanding autonomy debates links banking governance to committee recommendations and reform measures, enabling answers on causes, consequences and proposed solutions for PSB governance issues.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.1 History of Indian Banking and Reforms > p. 127
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > P J NAYAK Committee > p. 128
Majority government shareholding (over 51%) gives the state legal control over public sector banks.
High-yield for UPSC: explains differences in governance between public and private banks, links to public finance, nationalization history and state intervention in banking. Mastering this helps answer questions on ownership, accountability, and policy levers such as recapitalisation and mergers.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 4. Co-operative Banks: > p. 82
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > P J NAYAK Committee > p. 128
Legislation and government majority shareholding empower the Government of India to appoint boards of directors of public sector banks.
Essential for questions on institutional governance and administrative control of financial institutions; connects to topics on administrative appointments, regulatory oversight, and governance reforms in the banking sector.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > P J NAYAK Committee > p. 128
The BBB has been replaced by the **Financial Services Institutions Bureau (FSIB)** because the Delhi High Court ruled BBB incompetent to select heads of PSU Insurers. *Next Logical Question:* Who heads the FSIB? (Answer: A chairman nominated by the Central Govt, appointed by ACC).
Use 'Conflict of Interest' Logic: (B) RBI is the Regulator; if it appoints the Chairman, it cannot regulate them neutrally (Conflict). (D) Management cannot appoint their own Boss (Absurd). (C) Ministry represents political control, which reforms aim to reduce. (A) A specialized Bureau is the only logical administrative reform.
Mains GS-4 (Corporate Governance): This topic links to the 'Principal-Agent Problem.' The Government (Principal) owns the banks, but political interference led to NPAs. BBB/FSIB is the ethical mechanism to ensure 'Arm's Length' professional governance.