In a move to improve accountability of the board of directors, the Reserve Bank of India is asking banks, especially the private banks, to ensure full participation of its members in the board meeting and committee meetings of the board. According to sources, review of board and committee meeting proceedings was one of the critical aspects the recently concluded annual inspection of banks for FY23. “This year there was equal focus on financials aspects and the intangible factors such as corporate governance. As part of reviewing the strength of governance, the inspection looked into proceedings of board meetings and select committee meetings of the boards,” said a top executive of a private bank who didn’t want to be named.

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An important aspect which was repeatedly highlighted by the regulator was the inadequate participation of board members during the meetings. “Invariably, there is just one or two active members during these proceedings, including the CEO and the rest seem to be quite passive or mute spectators. This was particularly noticed in case of independent directors,” said a person familiar with the matter.

The central bank lately has been extremely vocal about improving the quality of governance in banks. “The regulator is keen that banks function like board run institutions because of the fiduciary responsibility towards depositors and to achieve this, it is critical to have a healthy and participatory board which does not seem to be the case across banks and more so with private banks,” said a highly placed source aware of the matter.

Recently, the RBI has directed private banks to have at least two whole-time directors as part of ensuring continuity and succession planning.

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Likewise, the regulator has also asked banks to minute the proceedings of all meeting in a way that it captures the participation of each member of the board in an accurate and elaborate manner. “The assent and dissent of every member of the board in the discussions should also be recorded properly,” a director of a private bank pointed out as feedback given by the regulator. The aim is to capture the meeting proceedings without any subjectivity.

In fact, sources say that in the next 12 – 18 months there could be more directives on strengthening corporate governance from the central bank. “In terms financial performance, banks are in a comfortable position. Expect the focus to now shift to intangible aspects including governance,” said the person quoted above.