MANAGEMENT OF THE NATIONAL BANKCentral

Section 6 of The National Bank for Agriculture and Rural Development Act, 1981

1[(1) The Board of Directors of the National Bank shall consist of the following, namely:--

(a)a Chairman;
(b)three directors from amongst experts in rural economics, rural development, village and cottage industries, 2[micro-enterprises, small-scale industries] or persons having experience in the working of co-operative banks, regional rural banks or commercial banks or any other matter the special knowledge or professional experience in which is considered by the Central Government as useful to the National Bank;
(c)three directors from out of the directors of the Reserve Bank;
(d)three directors from amongst the officials of the Central Government;
(e)four directors from amongst the officials of the State Governments;
(f)such number of directors elected in the prescribed manner, by shareholders other than the Reserve Bank, the Central Government and other institutions owned or controlled by the Central Government whose names are entered on the register of shareholders of the National Bank ninety days before the date of the meeting in which such election takes place on the following basis, namely:--
1. (i)where the total amount of equit.................................................. share capital issued to such shareholders is ten per cent. or less of the total issued equity capital two directors;
2. (ii)where the total amount of equity................................................ share capital issued to such shareholders is more than ten per cent. but less than twenty-five per cent. of the total issued equity capital three directors; and
3. (iii)where the total equity share capital......................................... issued to such shareholders is twenty-five per cent. or more of the total issued equity capital: four directors: Provided that until the assumption of charge by the elected directors under this clause, the Central Government may at any time nominate such number of directors not exceeding four from amongst persons having special knowledge of, and professional experience in, agricultural science, technology, economics, banking, co-operatives, law, rural finance, investment, accountancy, marketing or any other matter, the special knowledge of, and professional experience in, which would, in the opinion of the Central Government, be useful to the National Bank for carrying out its functions; and
(g)a Managing Director.

(2)The Chairman and other directors, excluding the directors referred to in clause (f), shall be appointed by the Central Government in consultation with the Reserve Bank: Provided that no such consultation shall be necessary in the case of directors appointed under clause (d) of sub-section (1).
(3)Where the Central Government is satisfied, in consultation with the Reserve Bank, 3*** that it is necessary so to do, it may appoint one or more whole-time directors with such designations as may be deemed appropriate by that Government and any whole-time director so appointed shall also be a member of the Board. 4* * * * *

Summary

The Board of Directors consists of a Chairman, a Managing Director, and several other directors from different sectors.
The Board includes three experts in rural economics or similar fields, three directors from the Reserve Bank, three Central Government officials, and four State Government officials.
Non-government shareholders can elect up to four directors, depending on how much equity share capital they own in total.
The Central Government appoints the Chairman and the other non-elected directors, but it must usually consult the Reserve Bank first.
The only time the Central Government does not need to consult the Reserve Bank for an appointment is when it is appointing its own Central Government officials to the Board.

Practical examples

1The Central Government wants to appoint a well-known professor of rural finance as an expert director on the Board. Before making the appointment official, the government writes to the Reserve Bank to get its opinion.

2A group of private commercial banks buys twenty percent of the National Bank's equity share capital. Because their combined ownership is between ten and twenty-five percent, they hold an election to choose three directors to sit on the Board.

FAQ

1. How many State Government officials are allowed on the Board?

The Board must include exactly four directors chosen from amongst the officials of the State Governments.

2. Do private shareholders get any representation on the Board?

Yes, shareholders other than the government and Reserve Bank can elect between two and four directors depending on their percentage of share ownership.

3. Does the government have to ask the Reserve Bank before appointing its own officials to the board?

No, appointing Central Government officials is the one exception where consultation with the Reserve Bank is not necessary.

Test yourself

Q1.Under Section 6 of The National Bank for Agriculture and Rural Development Act, 1981, how does the voting power of non-government shareholders affect their representation on the Board of Directors?

Q2.Under Section 6 of The National Bank for Agriculture and Rural Development Act, 1981, which category of appointed directors does NOT require the Central Government to consult with the Reserve Bank prior to appointment?

Q3.Under Section 6 of The National Bank for Agriculture and Rural Development Act, 1981, how many directors on the Board must be chosen from amongst the officials of the State Governments?

Q4.Under Section 6 of The National Bank for Agriculture and Rural Development Act, 1981, if the non-government shareholders own only five percent of the total issued equity capital, how many directors are they legally allowed to elect?

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