GETTING SET FOR LOW RISKS

Governance and business models of regulated entities came in for special attention ofthe central bank this year, reports Raghu Mohan

- Raghu Mohan

Mint Road's twin meetings with the boards of state-run and private banks on May 22 and 29 this year must go down as an initiative like none other to improve governance till date. A bland communique issued to boards well over a month before said it was primarily to discuss "issues related to governance, ethics, the role of the boards, and supervisory expectations." Many bankers and board members who thought it would be just another interaction with the top brass of the Reserve Bank of India (RBI) got it wrong.

It is for the first time that a Mint Road helmsman gave us a peek into the power structures within banks boards; and of personality cults.

Said RBI Governor Shaktikanta Das: "... we have noticed the dominance of CEOs in board discussions and decision making. It has been seen in such cases that boards are not asserting themselves. We would not like this type of situation to develop." Das referred to instances of agenda papers not being circulated well in advance of board meetings and power-point presentations being circulated in lieu of the same. And here is a pithy gem: "These powerpoint presentations are like a guided tour, and directors should clearly look beyond a guided tour." The meetings were a follow-through on Finance Minister Nirmala Sitharaman's announcement in the Union Budget for Financial Year 2023-24 (FY24) on the need for improving governance and investor protection in the banking sector. Sitharaman had proposed certain amendments to the RBI Act, 1934; the Banking Regulation Act, 1949; and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. And built on Mint Road's 'Discussion paper on governance in commercial banks in India', released on June 11, 2020. The objective of the paper was "to align the current regulatory framework with global best practices while being mindful of the context of the domestic financial system".