Directors' cut: Bank board reform hangs in balance amid governance rethink

As the banking landscape grows more complex, board oversight requires urgent finetuning. Expect Mint Road to tighten governance frameworks

In October 2023, the Reserve Bank of India (RBI) said private banks must have at least two whole-time directors (WTDs), including the managing director (MD) and chief executive officer (CEO). This was in the light of the growing complexity in banking. “…it becomes imperative to establish an effective senior management team to navigate the ongoing and emerging challenges,” the central bank held. The measure would also deal with succession planning. But developments at IndusInd Bank and Karnataka Bank, which saw their bosses and key personnel move on double-quick, show that bank governance may warrant closer attention. This, even as the issue of onboarding top-class independent directors (IDs) continues to be tough. 

Appointing directors 

So, how is one to read WTDs and the linkage with succession planning? 

On governance, the move to mandate two WTDs has broadly been delivered, feels Ravi Duvvuru, a member of the RBI’s advisory group on regulation and founder and designated director of Duvvuru & Reddy LLP. It has reduced the MD and CEO’s span of control, enabled sharper strategic focus, and created clearer functional segregation — typically with one WTD anchoring business and the other overseeing non-business functions. From a governance and control architecture perspective, this has been a meaningful improvement. As for succession, the outcomes have been limited. “The presence of two WTDs has not consistently produced a credible internal MD & CEO pipeline, with a significant proportion of appointments continuing to be sourced externally,” he says. It points to a deeper issue: Succession cannot be regulator-engineered; it must be board-owned.  Boards need to evaluate WTD appointments not merely as operational roles, but as long-term leadership bets, consciously grooming future CEOs and ensuring that institutions are developing genuine leaders in waiting, not just more insiders at the top. On IDs, Duvvuru is for a limited and structured engagement between the RBI and prospective directors — it can help signal governance expectations and reduce post-appointment uncertainty. 

The reality is many potential ID candidates shy away from taking up these positions. The task is seen as being too onerous and remuneration lags that on offer in wider India Inc. As R K Nair, ID on ICICI Bank’s board views it, specific demands placed on IDs are not unforeseen. “Anyone taking on such a role does so with a clear understanding of the responsibilities and accountability involved. It is, therefore, difficult to argue, after the fact, that the expectations are excessive.” That said, he concedes there’s a valid conversation to be had around compensation. If banks are to attract and retain high-quality IDs, especially in an environment of heightened oversight and personal liability, remuneration needs to be more closely aligned with what is offered across the broader landscape. “Strong governance ultimately depends on the quality of people willing to serve, and compensation structures should reflect that reality.” 

Another aspect that has not gotten the attention it merits is the way boards function: Dealing with an evolving and ever-expanding agenda (cybersecurity, artificial intelligence and ESG) through board committees that allow for enhanced decision-making. (This even as the Banking Regulations Act, 1949 says that not less than 50 per cent of directors are to be drawn from specific professions). “Some are for monitoring (audit committee) and others for advising (technology committee), ensuring that the bank is well served. Getting the dynamics between boards and the committees in place is important for the effective functioning of the board,” feels Amit Tandon, founder and MD of Institutional Investor Advisory Services (IiAS). 

“Once an issue has been deliberated at the committee level in detail, I don’t think it should be again taken up at the board level. Let the head of the relevant committee brief the board,” seconds Vimal Bhandari, who serves as chairman of HDFC MF Trustee Company and as ID on Escorts Kubota (he is a former RBL Bank board ID). He suggests a separate committee may be thought of for compliance and regulatory matters. “This committee can meet at regular intervals which need not be the same as the board meeting cycle. The point I am making is board deliberations can be streamlined for better optimisation of time for discussions on strategy, performance and people, which can have a meaningful impact.” 

A challenge ahead 

The interesting part is everyone knows what is to be done. Governance in banks got traction when the RBI constituted the Advisory Group on Corporate Governance (chaired by R H Patil in 2001). This was followed by the Consultative Group of Directors of Banks and Financial Institutions chaired by A S Ganguly in 2002 (commonly known as the Ganguly Committee) and the P J Nayak Committee to review governance of boards of banks in 2014. 

The next set of MDs & CEOs — at banks of all hues — will be those who would have started their careers post-1991 reforms. As India Inc gets even more integrated with the world, the challenge before them and bank boards will be to act as partners in this journey. They have to get a grasp of matters across business lines and multiple regulators — both in India and overseas. Former RBI deputy governor M Rajeshwar Rao had spelt out what is at stake here on May 22, 2023. “As we strive to become a developed country by 2047, financial institutions will need extraordinary amounts of financial resources to support growth to realise our visions for a brighter tomorrow. Raising these resources would not be a constraint for financial intermediaries with robust governance frameworks as they can command a governance premium,” Rao had said. 

Senior bankers see a fresh set of expectations from RBI on governance and compliance. Speaking at the Third Annual Global Conference of the College of Supervisors (Mumbai, January 12, 2026), RBI Deputy Governor Swaminathan J said compliance cannot be treated as a quarter-end activity. With faster cycles, banks will need stronger operational discipline and data governance throughout the year. When an anomaly is flagged, the ability to explain it and fix it quickly becomes a marker of control maturity. The talk, he said, was to convey, “How our engagement will change, and what we expect boards and management to demonstrate — before the next incident tests the system! And this calls for deeper engagement with boards and senior management on cyber governance, crisis playbooks, recovery capability, and learning from near-misses”.

The RBI can be expected to walk the talk. 

(From left) R K Nair, ID, ICICI Bank; Ravi Duvvuru Member, RBI’s advisory group on regulation and founder & designated director, Duvvuru & Reddy LLP 

(From left) Vimal Bhandari, Chairman, HDFC MF Trustee Company & ID, Escorts Kubota; Amit Tandon Founder & MD, IiAS

 

On the governance path 

Three key reports: RBI’s Advisory Group on Corporate Governance (chaired by R H Patil in 2001), Consultative Group of Directors of Banks and Financial Institutions (chaired by A S Ganguly in 2002) and P J Nayak Committee to review governance of boards of banks (2014) 

Consultative initiative: Conference of directors organised by the RBI for state-run banks (May 22, 2023 in New Delhi) and private banks (May 29, 2023 in Mumbai). Mint Road’s top brass interacted with the full boards of banks 

Whole-time directors: Private banks were asked to appoint at least two whole-time directors, including MD and CEO. Step meant to form a senior management team to manage challenges and deal with succession planning