Appointment of Managing Director of Development Financial Institution (DFI)

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Appointment of Managing Director of Development Financial Institution (DFI)

Appointment of Managing Director of Development Financial Institution (DFI)

The Banks Board Bureau (BBB) may be entrusted with the job to select managing director (MD) and deputy managing directors (DMDs) of a proposed Rs 1 lakh crore development financial institution (DFI) being set up to accelerated infrastructure financing activities.

It is seen from the Union Budget 2021-22 that the Central Government will build long-term infrastructure to keep India’s economic growth rate stable.

Development Financial Institution (DFI):

  • The National Bank for Financing Infrastructure and Development is the infrastructure financier.
  • Development financial institutions provide long-term and low-rate loans for long-term capital-intensive investments, such as urban infrastructure, mining, heavy industry, and irrigation systems.
  • It is a major hub for financing the ambitious National Infrastructure Pipeline(NIP) project.
  • The first DFI in India began in the year 1948 with the establishment of the Industrial Finance Corporation of India (IFCI).
  • However, during the 1970-80s, DFI got discredited for mounting non-performing assets, allegedly caused by politically motivated lending and inadequate professionalism in assessing investment projects for economic, technical, and financial viability.
  • While the increase in NPAs at the time was reportedly due to politically motivated loan disbursements and insufficient professionalism in assessing investment projects for economic, technical and financial viability.
  • These factors led to the Narasimham Committee (1991) recommending the dissolution of Development Financial Institutions (DFIs) and then active development financial institutions were converted into commercial banks.
  • The present Government of India is going to start the development financial institution again.

Bank Board Bureau(BBB):

  • In order to meet the challenges of the banking sector, a committee was formed in 2014 by the Governor of the Reserve Bank of India, Raghuram Rajan, headed by former Axis Bank Chairman PJNayak.
  • On 28 February 2016, based on the recommendations of the PJNayak Committee, the Government of India approved the formation of the Bank Board Bureau as an autonomous body.
  • Its function is to recommend the appointment of full-time directors and non-executive presidents of public sector banks (PSBs) and government financial institutions.
  • The final decision on these appointments is taken by the Ministry of Finance, in consultation with the Prime Minister’s Office.

Functions of Bank Board Bureau:

  • To make suggestions to the Government for appointment of Board of Directors (full-time Directors and Non-Executive Chairman) of Public Sector Banks and Financial Institutions.
  • Creating a data bank on the performance of Public sector banks and other financial institutions as well as its officers and board of directors and share it with government.
  • To advise the Government on the formulation of policy and code of conduct for the management personnel of public sector banks and financial institutions and, in the implementation of the same.
  • Assisting banks for business planning and raising capital. Etc.

Structure:

  • The ‘Bank Board Bureau’ consists of a Chairman and three ex-officio members, namely, Secretary of the Department of Public Enterprises, Secretary of the Department of Financial Services and Deputy Governor of the Reserve Bank of India.
  • In addition to this, the board also has five expert members, two of whom are elected from the private sector.

Source – PIB

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