RBI tightens oversight of bank board deliberations: Report

RBI, through the actions of SSMs, has made it clear that simply following procedural checklists is no longer enough

The Reserve Bank of India (RBI) has intensified its oversight of boardroom discussions in banks and may soon issue specific directives aimed at enhancing governance standards, a Business Standard report said on Monday.

According to senior executives in both public and private sector banks, the move comes in the wake of recent events at IndusInd Bank. RBI’s senior supervisory managers (SSMs) have been scrutinising the agendas shared with bank boards, how much time is spent on individual topics, and the input offered by independent directors, the report added.

Regulators are also examining discrepancies, if any, between the audio recordings of board meetings and the written minutes. Additionally, the RBI is looking into the functioning of board-level sub-committees, evaluating the quality of their discussions, the participation of individual members, how dissenting views are handled, and what recommendations sub-committee leaders are putting before the full board.

SSMs act as the RBI’s principal supervisory contact for a regulated entity (RE). Depending on the size of the RE, an SSM may be responsible for more than one entity. These officers, generally holding the rank of deputy general manager or general manager in the RBI’s supervisory department, are backed by a team whose size is adjusted to match the complexity and scale of the institution.

Amid this heightened scrutiny, banks are revisiting their compliance with two key RBI governance frameworks — the Master Direction on Corporate Governance dated May 18, 2016, and the circular on governance in commercial banks issued on December 2, 2021.

RBI, through the actions of SSMs, has made it clear that simply following procedural checklists is no longer enough. Following issues related to derivatives trading at IndusInd Bank, supervisory teams have shown increased interest in how banks manage treasury operations and internal housekeeping.

One area back in focus is a circular from May 14, 2015, which had eliminated the traditional ‘Calendar of Reviews’ — a standard checklist of 21 agenda items for board meetings. The RBI had then noted that such rigid structures often consume too much time and prevent boards from concentrating on critical strategic and financial issues. The guidance had urged banks to set their own board agendas and meeting frequency, with board approval, to allow for more focused deliberation.

This change echoed recommendations made by the P J Nayak Committee (2014), which had advocated a sharper focus on seven key governance areas: business strategy, financial integrity, risk management, compliance, customer protection, financial inclusion, and human capital.

The Nayak panel also found that boards which spent more time on broader strategic issues tended to be linked with better financial performance. Conversely, an excessive focus on risk-related discussions had a negative correlation with asset quality. Greater emphasis on strategic matters, they found, was generally tied to stronger returns on assets.

Board meetings often deal with hundreds of pages of documentation, including approvals and internal notes, and typically run for two to three hours. Sub-committee sessions are usually shorter. SSMs are now digging deeper, asking for clarity on finer points — such as how much time boards are spending on each topic, and whether their practices are in line with the 2015 guidance.

Former RBI Governor Shaktikanta Das had also flagged governance concerns during landmark meetings with entire bank boards in May 2023, held in New Delhi and Mumbai, the BS report further added. He had pointed out that the RBI’s supervisory reviews sometimes uncovered major issues — including incomplete or inaccurate information being submitted to boards.

He also noted that agenda documents under board review often failed to include all relevant material, resulting in oversight that was ineffective or only partially effective.