CRISIS FOR INDEPENDENCE

WHY BANKS AND NBFCs CAN'T FIND THE INDEPENDENT DIRECTORS THEY NEED

- BY RAGHU MOHAN

IN APRIL, professional services major Grant Thornton said in a report that private lender IndusInd Bank’s adverse accounting practices related to derivative trades would result in a ₹1,960-crore hit to the profit and loss account in FY25.

The report went into the roles and actions of key employees. But the incident has turned the spotlight on the role of independent directors on bank boards, since they are expected to act as a check on the senior management.

Banks and non-banking financial companies (NBFCs) are not unaware of this situation. They are scrambling to find competent independent directors with qualifications and expertise to undertake the increasingly executive roles that their boards are now required to perform. This was as a result of a decision by the Reserve Bank of India (RBI) to increase responsibilities of the boards and independent directors after a spate of scams rocked the sector towards the end of the last decade.

The clearest demonstration of the new thinking was the first-of-its-kind meeting former RBI Governor Shaktikanta Das held with the boards of state-run and private banks two years ago. The participants discussed governance, ethics, role of the boards and supervisory expectations. That meeting was a follow-up to Union Finance Minister Nirmala Sitharaman’s announcement in Budget FY24 on the need to improve the standards of governance and investor protection in banking. Sitharaman said the government would amend the RBI Act, 1934, the Banking Regulation Act, 1949, and the Banking Companies (Acquisition and Transfer of Undertakings Act), 1970.