The monetary regulator, Reserve bank of India has raised concern over the central government "occasionally exercising" its rights in banks and financial institutions by means outside the purview of the boards of these banks.
Expressing his concern, the RBI Governor D Subbarao said, "There are questions about how the government will play out its ownership role. This is not restricted to Nabard, it is something which is being played out in a number of institutions including the commercial banks." He went on to add, "Occasionally there are concerns over the government exercising its ownership rights not through the established channel which is the board mechanism, but outside of the board."
It should be noted that the central government enjoys majority stake in 21 banks, including the country's largest bank, SBI. It also owns majority stake in Financial Institutions (FIs) like LIC and four other general insurance companies.
Subbarao added, "I don't think that it is a good example of good corporate governance. One thing for the government could be to show exemplary behaviour of corporate governance and exercise their ownership rights through the board. I think that would be good for all financial institutions, including Nabard."