Building bridges anew

Mint Road and banks have to figure out how to fine-tune the role of boards in improving governance, reports Raghu Mohan

- Raghu Mohan

Last week, Tuhin Kanta Pandey called for defining the role of independent directors (IDs): that they must be regarded and treated as stewards of accountability. "We cannot continue to view them as honorary appointees or friendly critics. They must be viewed and treated as stewards of accountability," said the chairman of the Securities and Exchange Board of India (Sebi). For bankers, it was a déjà vu moment. Shaktikanta Das, as governor of the Reserve Bank of India (RBI), had in May 2023 observed, "It is necessary that 'independent' directors are truly independent."

The developments at IndusInd Bank have led RBI's senior supervisory managers (SSMs) to take a closer look at bank boards, including the agenda presented, the time spent discussing specific items, and observations made by IDs. Banks' compliance heads say (off-record) that a directive spelling out measures to improve governance may be in the offing. This even as it is felt that boards are turning executive in nature; having to increasingly deal with minutiae; and that it is nearly impossible to deliver on Mint Road's expectations.

The build-up to this situation has been in the works for long. The blowouts at Yes Bank, PMC Bank, Dewan Housing Finance, and less-than-adequate governance standards in many regulated entities (REs) led the RBI to turn up the supervisory knob. Says Subhash Chandra Garg, former union finance secretary, "In the last few years, the RBI's supervisory approach has also become more granular and intrusive. The supervisory pendulum has swung to the other extreme."

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