Do nominee directors influence bank performance?

Abstract

The purpose of this study is to examine the impact of board characteristics on the performance of Indian commercial banks. The study differs from the earlier studies as it analyses the impact of Government official nominee directors and Reserve Bank of India (RBI) nominee directors on the bank performance. A panel data approach has been used in this study. Particularly, the fixed effect estimation technique is used to examine the relationship between board characteristics, and bank performance during the period 2009–2010 to 2016–2017. The authors find that board size, female directors, and the average number of directorships held by outside directors are inversely related to performance. The central government official directors and RBI nominee directors negatively and significantly affect the performance of public sector banks. The results are robust across the various proxies of bank performance, and sub-samples classified on the basis of ownership, size of the bank, and bank capitalization. This study provides insights to policy regulators and policymakers who are entrusted with the appointment of the board of directors in the banks in light of the ongoing regulatory reforms