RBI Governor Flags Issues With Governance Of Certain Banks

The Governor of Reserve Bank of India (RBI), Shaktikanta Das highlighted that it is necessary that the Boards and the managements of certain banks do not allow gaps to creep in since they have the potential to cause volatility in the overall banking sector, saying that the RBI has come across such gaps in corporate governance for banks.

The top bank’s Governor said this at the inaugural address at the Conference of Directors of Banks organised by the Reserve Bank of India’s Public Sector Banks in Mumbai today.

Shaktikanta Das said that a robust governance structure is the first and the most important requirement for ensuring the stability of a bank as well as sustainable financial performance while listing out some of the guidelines for banks.

The RBI has also issued guidelines listing out seven critical themes which are required to be discussed in the Board meetings, said Das. They are business strategy, financial reports and their integrity, risk, compliance, customer protection, financial inclusion and human resources.

In addition, the central bank has also issued guidelines on the appointment of a chairperson and conduct of meetings of the board; composition of important committees of the board; age, tenure and remuneration of directors; and appointment of the whole-time directors.

The RBI Governor said, “It is, however, a matter of concern that despite these guidelines on corporate governance, we have come across gaps in governance of certain banks, with the potential to cause some degree of volatility in the banking sector.”

“While these gaps have been mitigated, it is necessary that Boards and the managements do not allow such gaps to creep in,” Das further said.

Addressing bankers on the occasion, Das also mentioned that it is the joint responsibility of the Chairman of the Board and the Directors, both whole-time as well as the non-executive or part-time Directors, to ensure robust governance in banks. This address came at a time when there has been instability in some US banks.

It may be noted that the Silicon Valley Bank, one of the most prominent lenders in the world of technology startups first collapsed on March 10 as it was struggling after a run on the bank by the depositors.

The closure of SVB had a domino effect with it leading to the closures of other banks like Signature Bank and First Republic Bank. The collapse of a few regional banks in the US sent ripples across the global banking industry and posed fears of a contagion effect across economies.

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