The Reserve Bank of India (RBI) has come up with a discussion paper on June 12,2020, on “governance in commercial banks in India, where by it has proposed for all banks whether listed or otherwise, shall have a Company Secretary who is bound by the professional standards of a Company secretary.
It further said, “All banks including those not listed and/ or operating as branches shall undertake secretarial audit in line with provisions of section 204 of the Companies Act, 2013 the scope of which shall include compliance to guidelines/directions emanating from this Discussion Paper. The Secretarial Audit report shall be made available to the Audit Committee of the Board (ACB) which shall have an oversight over compliance to various gaps reported by the audit”
The discussion paper also suggests that, “the role of the head of compliance function is specific to the role expected of the bank being an RBI regulated entity while the role of the company secretary is to be defined by the fact that a bank is also a company or body corporate.”
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RBI has also proposed to restrict the tenure of chief executive officers (CEOs) and whole-time directors (WTDs) of commercial banks to 10 years if the person is from the promoter group and 15 years in the case of professional management. Thereafter, the individual shall be eligible for re-appointment as a whole-time director or CEO only after the expiration of 3 years.
In addition to the suggested changes to management tenures, the RBI has also suggested tweaks to board governance. The suggestions include:
- The board of a bank shall comprise no fewer than six directors and no more than 15 directors, with the majority being independent directors.
- The Chairman of the Board should be an independent director.
- All meetings of the board should have a majority of independent director.
- The appointment of the Chair of a banking company shall be with the previous approval of the Reserve Bank and be subject to such conditions as the Reserve Bank may specify while giving such approval.
- The board shall not have more than three directors who are entitled to exercise more than 20% of the total voting rights of all the shareholders of the bank.
- The board shall comprise of individuals with a balance of skills, diversity and expertise. The board shall collectively possess the necessary qualifications commensurate with size, complexity and risk profile of the bank.
The central bank said 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.