Missing the woods for the trees? Why bank boards need a governance reset

For years, many bank boards drifted into operational minutiae-approving individual loans, vetting vendors, weighing in on promotions of executives - instead of setting up policies

It’s 11:00 am.

 

Let’s skip the date.

 

The venue is the boardroom of a public sector bank (PSB).

 

On this day of the month, the board secretariat starts working at 7 am. There’s a lot to do: Printing agenda books, testing the virtual conference (VC) links, making the nameplates of the directors and arranging water bottles, tea, notepads and pens for them.

 

The long, polished mahogany table is oval-shaped around which at least 24 persons can sit comfortably. There is another row of chairs, against the wall. The chairman heads the table. A 98-inch screen is glowing with the Webex logo. Two cameras are tracking the room.

 

At 11:02 am, the directors walk in – a few in bandhgalas and others in suits. Besides the chairman and the MD & CEO of the bank, the whole-time directors (two executive directors), the government nominee director, the Reserve Bank of India (RBI) nominee director, the chartered accountant director, and a few others are present. The MD & CEO shakes hands with each of them.

 

One independent director joins the VC from another city – one can see his hotel room. The board secretary tells him, “Sir, please confirm you’re alone and the line is secure.” He nods.

 

At 11:05 am, the chairman looks at the company secretary and says, “If the quorum is present, we may begin.”

 

Company secretary: “Yes sir, nine directors physically present and one on VC. Quorum complete.”

 

11:06 am: Item 1 – Confirmation of the previous board meeting’s minutes.

MD & CEO’s signed minutes flash on the screen.

 

Company secretary: “Minutes of the meeting dated XXX were circulated. No comments received.”

Chairman: “Taken as read and confirmed.” He taps the gavel.

 

It’s over in 90 seconds.

 

11:08 am: Item 2 – Action taken report. The report, partly an Excel sheet and partly in tabular form, flashes on the screen: 23 board directions – 19 complied with, three in progress, one related to core banking migration is delayed.

 

One executive director explains the reasons for the delay in two minutes. And gives a fresh timeline.

 

Chairman: Noted. Next review in June. Passed.

 

11:20 am: Item 3 – Policy approvals: Credit policy 2026-27; IT outsourcing policy and CSR policy.

 

The vertical heads of respective departments along with the chief risk officer (CRO) walk the meeting through three slides on each subject. There aren’t many questions as these have already been cleared by the risk management committee and the audit committee of the board and relevant committees of the bank at different levels.

 

One independent director asks: “Is the climate risk annexure aligned to the RBI draft?”

 

CRO: “Yes sir, para 4.3.”

Chairman: “Any other points? Approved.”

 

(What about gap analysis, impact of last year’s policy changes? Well, they are all delegated to the board committees. The board trusts the process.)

 

12:15 pm: Item 4 – Note for approval: The capital-raising proposal.

 

The chief financial officer makes a 20-minute presentation. One nominee director asks about the proposed dilution of stake. For the first time, the director on VC unmutes and asks, “What’s the timeline? If the markets turn bad?” MD & CEO  decides to go for voting. Approved, subject to approval at the extraordinary general meeting.

 

1:45 pm: Items 5-12 – Status of NPAs, cyber incidents, HR, subsidiaries.

 

Most taken on record (observations, if any are noted). Two directors check their watches as another meeting outside the bank is scheduled after lunch.

 

1:58 pm: Chairman: “If there’s no other item, we can close. Thank you all.”

 

Secretary of the board: Lunch is ready, request everyone to come to the dining room.

 

2:00 pm: The directors shake hands. The VC window closes. The board secretariat will start drafting the minutes tomorrow.

 

The ritual of 2 pm lunch bell is sacrosanct for many PSBs. There have been instances where as many as 18 agenda items are “noted” between 1:30-1:55 pm. This time, there are only eight.

 

What are the key takeaways from such a board meeting?

 

As the policies are prescribed by the RBI and pre-vetted by the board committees, time is spent in ticking the boxes, not discussing strategy.

 

The gap analysis – between what a policy says and how the bank branches implement the policy – is rarely discussed at a board meeting. Finally, is a three-hour once-in-a-month (occasionally two-a-month or six weeks) meeting good enough to oversee a multi-trillion-rupee balance sheet?

 

The RBI’s April monetary policy has proposed three measures for promoting ease of doing business. The first of them is “better utilisation of a bank board’s time”.

 

To facilitate that, after a comprehensive review of all existing instructions, the RBI has proposed to revise and rationalise the matters requiring a bank board’s attention.

 

Ahead of that, it had issued RBI (Commercial Banks – Governance) Directions, 2025, in November last year, to establish a robust framework enhancing corporate governance for PSBs, private sector banks and foreign banks. Immediately effective, the objective behind the directors is to strengthen the oversight, risk management, and accountability of bank boards.

 

For years, many bank boards have drifted into operational minutiae—approving individual loans, vetting vendors, weighing in on promotions of executives – instead of setting up policies, defining risk appetite, and challenging strategy.

This blurred the boundary between governance and management -- at times creating friction with senior executives and diluting the quality of policy oversight.

 

The RBI’s message is loud and clear: The directors should set the tone, ask hard questions, and make the management accountable, instead of stepping into the shoes of whole-time directors for everyday decisions. Borrowing an analogy from cricket, the board is the umpire, not a player on the field. The third umpire, RBI, is there to step in, if required.

 

The regulator has repeatedly flagged practices such as loan ever-greening, misreporting of stressed assets, and weak audit (and compliance) cultures in many banks (both PSBs as well as private banks) as symptoms of board-level governance gaps. The board must concentrate on policy, risk appetite, and forward-looking strategy and the management of a bank must run operations within the frameworks that the board approves.

 

The governance directions distil board responsibility into four interlinked roles: Monitoring the bank’s risk profile, ensuring the reliability of control systems, guaranteeing expert and ethical management, and protecting stakeholder interests—especially depositors.

 

One persistent challenge, especially in PSBs, has been the number of board vacancies and limited diversity. There is considerable scope for deeper and more influential participation by women in bank boardrooms.

 

The legal architecture offers plenty of room for diversity at bank boards.

Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970/1980, permits a wide range for directors —from whole-time directors and government representatives to employee, chartered accountant, shareholder, and non-official part-time directors—pushing the size of PSB boards. The overarching goal is that every PSB board should have the breadth of expertise.

 

The board should shift attention from micro management to overseeing policy adherence. Shorter, better-curated agendas will allow deeper engagement on strategy, risk, conduct, and culture, while routine approvals can be handled through board-approved delegation and committee structures.

 

By trimming repetitive or low-impact items, the RBI wants boards to have the time and bandwidth to grapple with big-ticket items rather than rubber-stamp a long list of routine notes. The idea is to move boards “from approving loans to owning risk”, from box-ticking to meaningful debate.

 

Under the updated framework, boards are expected to retain control over strategy, key policy approvals, and the definition and regular review of risk appetite. They are also tasked with overseeing large exposures, related-party transactions, subsidiary governance, and the overall conduct and compliance framework.

 

The aim is not to sideline the boards but to ensure their involvement is relevant where it matters. After all, the board should not miss the woods for the trees.

 

The writer, a Consulting Editor of Business Standard, is an author and senior advisor to Jana Small Finance Bank Ltd. His latest book is Roller Coaster: An Affair with Banking. To read his previous columns, log on to www.bankerstrust.in X: @TamalBandyo