The Reserve Bank of India (RBI) on Tuesday overhauled the framework governing matters to be placed before bank boards, replacing the existing seven-theme structure with a principle-based approach aimed at allowing directors to spend more time on strategic priorities and risk oversight.
The revised directions will come into effect from October 1, with the central bank extending the implementation timeline by a month following feedback from stakeholders. The draft guidelines were issued on April 8.
Under the earlier framework, board agendas had to be structured around seven broad themes — business strategy, risk, compliance, financial reporting and integrity, customer protection, financial inclusion, and human resources.
“Discontinuing the themes is not meant to dilute regulation or weaken Board oversight. Instead, the newly introduced principle-based approach intends to provide Boards the freedom to formulate their agendas based on the specific bank’s priorities,” RBI said in an annexure to the directions.
However, the central bank retained the provision making the chairperson primarily responsible for setting the board agenda. While the entire board is expected to be consulted, the primary responsibility should rest with the chairperson, in line with global corporate governance practices, it said.
Announcing the proposal during the April monetary policy statement, RBI Governor Sanjay Malhotra had said the review, undertaken at the request of banks, would allow boards to devote more time to policy and strategic matters while leaving operational issues to management.
The overhaul also comes amid heightened focus on the separation of governance and management roles, following the resignation of former HDFC Bank chairman Atanu Chakraborty after differences with managing director and CEO Sashidhar Jagdishan over the board’s involvement in operational matters.
The RBI rejected suggestions to retain a mandatory requirement for placing regulatory developments before the board, saying keeping directors updated is the responsibility of a bank’s compliance and secretarial functions and does not require a separate regulatory mandate.
While some stakeholders argued that Action Taken Reports improve accountability by tracking the implementation of board decisions, the central bank declined to make them mandatory, saying boards are best placed to determine appropriate mechanisms for monitoring execution.
The regulator accepted industry feedback to drop the requirement for boards to define what constitutes a “material amendment” to policies before delegating their review. However, it rejected suggestions to allow board committees flexibility in deciding review frequency, saying boards must specify the terms of reference, including the periodicity of policy reviews, while delegating such responsibilities.
The RBI also modified the draft provisions on delegation after stakeholders argued that core oversight functions should not be delegated to senior management and that the bank’s overall performance should not be attributed solely to the board.
At the same time, the central bank strengthened the requirement that boards clearly identify matters reserved for their approval or reporting and ensure adequate time is devoted to strategy and risk governance, accepting suggestions to make the provision mandatory rather than discretionary.
