RBI calls meeting of all bank boards to discuss governance, supervisory

Ethics, supervisory expectations may also figure in May 29 meeting

The Reserve Bank of India (RBI) has called a meeting of the board of directors of all banks — state-run, private, and foreign — on May 29 to primarily discuss “issues related to governance, ethics, the role of the boards, and supervisory expectations”, a top source told Business Standard.

RBI Governor Shaktikanta Das, deputy governors, and the executive directors of the central bank’s Department of Supervision, Department of Regulation, and Enforcement Department will steer the first-of-its-kind interaction.

In case the meeting with the boards of banks of all hues is not possible on May 29, it can be staggered, the source said, adding that the logistics of holding the event are being worked out.

The planned daylong meeting is being seen as a significant first step following Finance Minister Nirmala Sitharaman’s announcement in the Union Budget for FY24 about the need for improving governance and investor protection in the banking sector. Sitharaman had proposed certain amendments to the Reserve Bank of India Act, 1934; the Banking Regulation Act, 1949; and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.  

The meeting is also expected to take up the key issues put forward 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”.

It was for empowering bank boards to set the culture and values of the organisation; recognise and manage conflicts of interest; set the appetite for risk and manage risks within the appetite; improve the supervisory oversight of senior management; strengthen the assurance functions through various interventions; achieve clear division of responsibilities between the board and the management; and to encourage the separation of ownership from management.

It is believed that the authorities may over time align the board hygiene protocols across banks. This is because, while the applicability of the contents of the said paper cut across banks, it had qualified “except in so far as what is prescribed is not inconsistent with provisions of specific statutes applicable to them or in case where the major shareholder/promoter viz., Government of India retains its instructions”. This aspect has to be read along with Sitharaman’s proposal for amending the key Acts pertaining to the sector.