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    RBI Consults on Guidelines on Governance in Commercial Banks in India

    June 11, 2020

    RBI published a discussion paper on governance in commercial banks in India. The objective of the discussion paper is to align the current regulatory framework with global best practices while being mindful of the context of domestic financial system. The comments on the discussion paper will be accepted until July 15, 2020. Based on the feedback, RBI will issue necessary directions or guidelines and provide clarifications, if needed, in respect of any matter covered in the directions or guidelines. The new guidelines or direction shall come into effect within a period of six months after publication or April 01, 2021, whichever is later.

    Improving the quality of governance in financial intermediaries is an important determinant of efficiency in allocation of resources, protection of depositors’ interest, and maintaining financial stability. In this endeavor, the paper has been drafted to encourage stakeholder feedback. The guidelines or directions that are the subject of this discussion paper are intended to:

    • Empower the board of directors to set the culture and values of the organization; recognize and manage conflicts of interest; set the appetite for risk and manage risks within the appetite; and improve the supervisory oversight of senior management
    • Empower the assurance functions through various interventions
    • Achieve clear division of responsibilities between the Board and the management
    • Encourage the separation of ownership from management

    The content in the paper have been compiled after reviewing extant instructions/guidelines/directions of RBI and relevant guidance available in public domain, including those issued by BCBS, FSB, and the Banks Board Bureau. The unique characteristic of financial intermediation and spill-over impact of governance failures on real sector has not been missed while drafting the paper. Therefore, the approach has been to set higher aspirational standards in governance for entities engaged in financial intermediation. The paper must be read along with other governing statutes, regulations, and licensing conditions applicable to banks and the most stringent shall be followed. The discussion paper is applicable to private sector banks, including small finance banks, payments banks, wholly-owned subsidiaries of foreign banks and foreign banks operating in India under branch model. It is also applicable to the State Bank of India, nationalized banks and regional rural banks, except in so far as what is prescribed is not inconsistent with provisions of specific statutes applicable to them or in case where the major shareholder or promoter—that is, the government of India—retains its instructions.

    Comment Due Date: July 15, 2020

    Keywords: Asia Pacific, India, Banking, Governance, Risk Appetite, Operational Risk, Internal Control, Guidelines, Basel, RBI

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