RBI to meet private bank boards on November 18 to discuss governance

This will be 2nd meeting of its kind

The Reserve Bank of India (RBI) has called for a meeting with the boards of private banks on November 18 in Mumbai. Another meeting with state-run banks is expected later.

The interaction next month will be the second-of-its-kind with RBI governor Shaktikanta Das, deputy governors, and executive directors in the Department of Regulation, Department of Supervision, and Enforcement Department.

The maiden conference of directors of state-run banks and private banks was held on May 22, 2023 in New Delhi and May 29, 2023 in Mumbai.

While the agenda for the meeting has not yet been circulated, senior bankers said they expected the central bank to follow through on the ten key points articulated by Das at last year’s conference; and also take up issues on technology, cyber security and customer protection.

The ten aspects were: a) governance and stability, b) requisite qualification and expertise in the Board c) objective and independent board d) role of chairperson, board committees and corner-room occupants e) corporate culture and value system f) quality of information g) effective oversight of senior management h) business model and conduct i) integrity and transparency of financial statements and j) the independence of assurance functions; risk management, compliance and internal audit.

In his concluding remarks after last years’ interaction, Das had said that the soundness of the banking system relies critically on effective corporate governance to build an environment of trust, long-term stability and business integrity of banks. Governance frameworks can be pictured as a complex mesh of nuts and bolts holding the financial pillars of capital, assets, deposits and investments in place and keeping the structure of the bank upright. Raising financial resources would not be a constraint for banks with robust governance frameworks as they can command a governance premium. This premium in turn will be driven by quality of leadership at the top.

Ahead of last year’s meeting, the move was seen as a significant first step following finance minister Nirmala Sitharaman’s announcement in the Union Budget for FY24 on the need for improving governance and investor protection in the banking sector. It might be recalled that Sitharaman had in the FY24 Budget proposed certain amendments to the Reserve Bank of India Act (1934), Banking Regulation Act (1949), and the Banking Companies (Acquisition and Transfer of Undertakings) Act (1970).

The upcoming meeting is “expected to finetune” the issues raised in Mint Road’s 'Discussion paper on governance in commercial banks in India’ released on June 11, 2020. The objective of this paper was “to align the current regulatory framework with global best practices while being mindful of the context of the domestic financial system.”

Talking points

> Revisit all 10 points articulated by RBI governor at last year’s conference

> These include role of managing directors, independent directors

> Technology, cybersecurity and consumer protection