RBI sets up panel to strengthen supervisory role of bank boards

Our Banking Bureau

Mumbai, Nov 27: The Reserve Bank of India (RBI) on Tuesday announced the setting up of a consultative group to strengthen supervisory role of bank boards after deliberations with the Indian Banks’ Association (IBA). The group has been requested to submit its report within three months.

The mandate for the 12-member group, headed by RBI central board director, Dr AS Ganguly, is to review the supervisory role of the boards of banks or financial institutions; and to obtain feedback on the functioning of the boards vis-a-vis compliance, transparency, disclosures, audit committees, etc.

The group has also been asked to study the system prevalent in banks or financial institutions for monitoring by the board, the implementation of the policies laid down by it, besides making recommendations for making the role of board of directors more effective with a view to minimising risks and over-exposure and any other matter relevant to the subject.

Prominent members of the group are Dr JL Saha, director, IIM, Ahmedabad; Tarun Das, Director-General, Confederation of Indian Industry (CII), New Delhi; Janki Ballabh, chairman, State Bank of India; D Satwalekar, director, HDFC Bank Ltd; SC Wadhwa, director, Dena Bank; PV Indiresan, director, Indian Bank; Shailendra Swarup, director, Corporation Bank; PR Khanna, director, State Bank of India; SK Munjal, director, Bank of India; executive director, RBI (in-charge of DBOD), and CGM in-Charge, DBOD as member-secretary.

It may be recalled that the RBI in its mid-term review of monetary and credit policy on October 22, 2001 had announced a proposal to set up a consultative group of directors of a select group of commercial banks and financial institutions to suggest, for consideration by the government/RBI, measures for strengthening the internal supervisory role of boards.

RBI had said in its mid-term review that recent developments, including unethical and unwarranted lending practices involving a few relatively small private sector banks, one large urban cooperative bank (Madhavpura Mercantile Cooperative Bank) and a few stock broking entities have thrown up new challenges to the regulatory and supervisory system as well as standards of corporate governance.

In recent years, as part of the on-going financial sector reforms, much greater autonomy and powers have been entrusted to banks’ boards, to lay down effective internal guidelines and procedures for transparency, disclosure, risk and asset-liability management.

Yet, it has been noticed that in some cases, the policy laid down by the boards was either flouted with impunity or the board itself had failed to lay down appropriate internal guidelines for minimising risks and over-lending to certain entities without adequate security, RBI said and observed that if problems of this type which have surfaced recently are to be avoided, the role of boards becomes crucial.