"Now it won't be just one person deciding on the appraisal of top officials, it shall be the management which shall take these decisions," the Finance Minister said.
"To make the management accountable to the board, the board committee of nationalised banks will have to appraise the performance of the General Manager and above ranks, including the Managing Director," she said.
Speaking to reporters here, Sitharaman also said that the PSB boards will be given the flexibility to include Chief General Manager (CGM) level officials as per the business needs to make the span of control manageable in large PSBs post the government's merger announcement.
The government also decided to permit state-run banks to recruit Chief Risk Officers from the market at market-linked compensation, and not on salaries decided by the government.
To enable a succession planning, the boards would decide on a system of individual plans for all senior executive positions.
"This would mean that at each of the senior-level positions, there will be a set of 2-3 people who will be ready (to take over)," the Finance Minister said.
In another big reform, the Central government on Friday announced the merger of 10 public sector banks (PSBs) into four entities, which includes the amalgamation of Oriental Bank of Commerce and United Bank of India with Punjab National Bank.
According to Sitharaman, Canara Bank and Syndicate Bank will be merged into one entity, while Union Bank of India, Andhra Bank and Corporation Bank will be amalgamated into a single unit.
( With inputs from IANS )