Directors and Corporate Governance (Banking Companies)

Directors and Corporate Governance in banking company is an inherit requirement as banking is considered backbone of economy. Various committee, act and RBI have set out guidelines for board of directors of banking companies.

Directors and Corporate Governance

Fit-and-Proper criteria for Directors and Corporate Governance

The Fit-and-Proper criteria for Directors, as set out by RBI are as follows:

  • The Reserve Bank of India (RBI) has tightened the fit-and-proper criteria for directors on the boards of public sector banks. According to guidelines, the Centre’s nominee director shall not be part of the nomination and remuneration committee (NRC). The NRC shall have a minimum of three non-executive directors from amongst the board of directors. Of this, not less than one-half shall be independent directors and should include at least one member from the risk management committee of the board
  • No person is to be elected or re-elected to a bank board if the candidate has served as a director in the past on the board of any bank, the RBI or insurance company under any category for six years, whether continuously or intermittently. The candidate should not be engaging in the business of stock broking
  • The candidate should not be a member of Parliament, state legislature, municipal corporation, municipality, or other local bodies — notified area council, city council, panchayat, gram sabha or zila parishad.
  • The candidate should not be a partner of a chartered accountant (CA) firm currently engaged as a statutory central auditor of any nationalised bank or State Bank of India; or when the firm is engaged as statutory branch auditor or concurrent auditor of the bank in which nomination is sought.
  • The format for the ‘Declaration and undertaking by director’ has also been fleshed out and made more exhaustive

Adherence to Ganguly Committee Recommendations

The recommendations of the Ganguly Committee on corporate governance in banks have highlighted the role envisaged for the Board of Directors. The Board of Directors should ensure that the responsibilities of directors are well defined and the banks should arrange need-based training for the directors in this regard. While the respective entities should perform the roles envisaged for them, private sector banks will be required to ensure that the directors on their Boards representing specific sectors as provided under the B. R. Act, are indeed representatives of those sectors in a demonstrable fashion, they fulfill the criteria under corporate governance norms provided by the Ganguly Committee and they also fulfill the criteria applicable for determining ‘fit and proper’ status of Important Shareholders

Family members in Bank Board

As a matter of desirable practice, not more than one member of a family or a close relative (as defined under Section 6 of the Companies Act, 1956) or an associate (partner, employee, director, etc.) should be on the Board of a bank.

Read Next: Powers of RBI to Issue Directions

Download this article as PDF

Click to go to JAIIB Preparation Page