Detailed prescriptions on board composition, risk oversight and disclosures are firmly in place. Regulatory messaging has consistently emphasised independence, transparency and accountability. Yet, the gap between regulation and practice is visible.
The explanation is straightforward: Governance cannot be enforced externally and must be internalised. When treated as a compliance obligation, rather than a core institutional value, it degenerates into a checklist exercise.
A central challenge lies in board composition. There is often a shortage of experienced independent directors (IDs) with deep expertise in the specialised fields envisaged under the Banking Regulation Act, 1949. The talent pool willing to take on the demanding responsibilities of bank directorships — given the expectations and relatively modest remuneration — is small. As a result, institutions are sometimes compelled to make compromises.
That said, it would be unfair to generalise. There are boards where IDs play a rigorous and constructive role. The issue is not the concept of IDs but how the role is exercised.
This raises an important question: Should there be deeper regulatory engagement in the appointment of IDs? While approvals are required for whole-time directors and non-executive chairpersons, IDs do not face comparable scrutiny. Even an informal regulatory interaction — at least for large banks — could help set expectations around fiduciary responsibility and independence of mind.
Equally important is the flow of information. In the United States and the United Kingdom, regulators rely less on prescriptive approvals and more on accountability frameworks. Governance is reinforced through practice: IDs meet without management present, board committees are empowered and expertise-driven, and directors have direct access to risk, audit and compliance functions. (While these principles exist in India, the gap lies in consistent execution. One step could be periodic external evaluations — by credible firms — of board effectiveness.) Transparency and market discipline further strengthen governance in these markets. Institutional investors actively engage with boards and are willing to vote against directors when standards fall short. Accountability is thus not confined to the regulator — it is reinforced by the market.
What needs to change then?
First, governance must become central to how boards, regulators and investors assess performance.
Second, leadership must redefine success. CEOs should aspire not only to deliver returns but to build institutions.
Third, while financial soundness, risk management and adherence to prudential norms and regulatory guidelines remain critical, governance underpins them. Assigning greater weightage to governance in supervisory rating models, along with stronger emphasis on Board effectiveness and calibrated disclosures, could act as a deterrent.
Fourth, there is merit in considering clearer expectations around board leadership. The Reserve Bank of India could evaluate stipulating that the chairperson of a bank has a demonstrable background in the financial sector.
Fifth, good governance must be visibly recognised, and failures must attract proportionate consequences.
Sixth, transparency is equally critical. Governance lapses must be disclosed clearly and promptly. Market discipline can function only when information is available.
Seventh, there must also be a clear protocol for communication between management and the board.
Governance failures are rarely about the absence of rules — they are about the erosion of will. Frameworks do not fail — people do. Until boards choose scrutiny over comfort and institutions value candour over convenience, such episodes will recur. India does not need more regulation, it needs boards that are willing to ask uncomfortable questions — and refuse comfortable answers.
The writer is member, RBI’s advisory group on regulation, and founder & designated director of Duvvuru & Reddy LLP
 "True institutional integrity requires internalising oversight, moving beyond superficial regulatory compliance to foster genuine accountability")