RBI to bank boards: Nayak panel's 7 themes to set agenda

Will replace the 'calender of reviews'; guidelines also to private banks for policy on remuneration to non-EDs, discussion with govt proposed for PSB parity here

 

The Reserve Bank of India (RBI), in this financial year’s first bi-monthly monetary policy statement, directed the replacement of the ‘Calender of Reviews’ deliberated on by banks’ board of directors with the seven critical themes prescribed by the P J Nayak committee.

These parameters are business strategy, financial reports and their integrity, risk, compliance, customer protection, financial inclusion and human resources. It has been left to the boards to determine other items to be deliberated.

In addition, RBI said guidelines would be issued to private sector banks on a remuneration policy for non-executive directors  (ED), other than the part-time chairman. And, it would discuss with the centre on adoption of a similar policy for the non-EDs of public sector banks (PSBs).

“The need to bring professionalism to the boards of banks cannot be over-emphasised. To attract and retain professional directors, it is essential that they are appropriately compensated. PSBs follow guidelines issued by the government in this regard. The remuneration of the part-time chairmen of private sector banks is approved specifically for each bank under the current statutory provisions. However, there is no guidance on remuneration to (their) other non-EDs,” stated the central bank.

“The decision to examine and issue guidelines for remuneration of non-EDs, other than part-time chairmen, is a welcome move. There is a need to bring greater professionalism in the boards of banks,” said Jyotsna Suri, president of the Federation of Indian Chambers of Commerce and Industry.

RBI said it had been prescribing a comprehensive ‘Calendar of Reviews’ to be deliberated on by the boards of banks, with significant additions to the calendar over the years. The time spent on these reviews reduces leeway for the board to discuss issues of strategic importance such as product market strategy and risk management, it felt. The Nayak panel was asked to review governance norms of the boards of directors of all banks, state-owned and private. It recommended that discussions at the latter needed upgrading, with more focus on strategic issues. “It is, therefore, proposed to do away with the mandatory ‘Calendar of Reviews’ and instead replace it with the seven critical themes prescribed by the Nayak committee.”

The committee had also proposed that the government distance itself from several bank governance functions which it currently discharges. And, that the process of board appointments, including of whole-time directors, needed to be professionalised.

Also, it had stressed the need to upgrade the quality of board deliberation in PSBs. Among the seven themes identified for detailed board scrutiny, the panel had said a predominant emphasis needed to be provided for business strategy and risk.