Business Standard

RBI meet: Focus turns to public sector bank boards' strategic role

Lenders seek a raise in independent directors' remuneration

RBI

RBI

Raghu Mohan New Delhi

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A plea that the banking regulator’s stress should be on the strategic role of boards and an increase in the remuneration of independent directors were among the issues put forward to the Reserve Bank of India’s (RBI’s) top brass in its interaction with the full boards of state-run banks held on Monday.

The meeting, the first leg of first-of-its-kind interactions with the boards of state-run banks, will now be followed by those of private banks in Mumbai on May 29.

The RBI’s press release, issued late on Monday, did not refer to the specific points that found mention in the deliberations, but top sources told Business Standard the twin concerns were taken up in the open-house interaction with the banking regulator’s brass.

The RBI’s circular of April 26, 2021, said in addition to sitting fees and expenses related to attending meetings of the board and its committees in accordance with extant statutory norms/practices, the bank might pay non-executive directors (NED) in the form of a fixed remuneration commensurate with an individual director’s responsibilities and demands on time and what was sufficient to attract qualified and competent individuals.
Strengthening the system
  • RBI Governor Shaktikanta Das exhorted bank directors to further strengthen the governance and assurance functions
  • Das emphasised the need for banks to ensure continued financial and operational resilience
  • Banks told to identify and mitigate risks at an early stage
“However, such fixed remuneration for an NED, other than the Chair of the board, shall not exceed Rs 20 lakh per annum.”

In the case of non-banks, according to the Companies Act (2013), the remuneration payable to directors who are neither managing director nor whole-time director shall not exceed 1 per cent of the net profit of the company concerned.

While it could not be ascertained whether such a demand was made, this remuneration is better in other parts of India Inc.

While Mint Road’s “Discussion paper on governance in commercial banks in India”, released on June 11, 2020, did not directly impact state-run banks because it had said “(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”, it is widely held that the authorities may over time make uniform board hygiene protocols across banks. 

This paper had turned contentious, with corner-room occupants at private banks saying that their powers were sought to be curtailed significantly. Another sticking-point with independent directors of these banks was of “the boards being made executive in nature even as they are not to interfere in the day-to-day operations”. This latter aspect flowed from the fact that the nomination and remuneration committee, audit committee, and the risk-management committee were to have only non-executive directors. The short-point: If an alignment of protocols were to be undertaken across banks, it is only fair that bank boards of both classes of banks be free to focus on the strategic.

In Monday’s meeting, RBI Governor Shaktikanta Das “acknowledged the role played by the banks in supporting the economy and maintaining resilience along with improved financial performance in the face of several adverse shocks in recent times”.

He asked the directors of banks to further strengthen governance and assurance functions (risk management, compliance, and internal audit) so that the banks were able to identify and mitigate risks at an early stage. The governor also emphasised the need for banks to ensure continued financial and operational resilience. The conference included addresses by the deputy governors of the RBI and technical sessions on governance and assurance functions, credit risk, operational risk, IT/cyber risk and data analytics.

Topics : RBI Banks

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First Published: May 22 2023 | 11:20 PM IST

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