The Reserve Bank of India’s shift to a principles-based governance framework gives bank boards greater flexibility in setting their priorities, but experts say it also raises the bar on directors’ judgement, accountability and oversight.
“The RBI’s move marks a clear shift from rule-based to principles-based governance. Directors will increasingly be judged by the quality of oversight and outcomes rather than compliance with a prescribed agenda,” said Pratik Shah, National Financial Services Leader at EY India.
He added that for well-governed banks, this should free up management and board bandwidth to focus more sharply on strategy, risk management and long-term resilience.
Reorienting the Boardroom
The central bank on Tuesday issued revised governance directions that replace the earlier framework built around seven broad themes with a principles-based approach aimed at enabling bank boards to use their time more effectively and focus on strategy, risk governance and oversight. The revised norms will come into effect from October 1.
The earlier framework required boards to deliberate on seven broad themes—business strategy, risk, compliance, financial reporting and its integrity, customer protection, financial inclusion, and human resources.
The RBI accepted several stakeholder suggestions to ease operational requirements, including removing the requirement to define “material amendments” to policies, modifying delegation norms and extending the implementation timeline. However, it rejected requests to retain the seven governance themes, mandatory Action Taken Reports (ATRs) and periodic regulatory updates to boards, while retaining the chairperson’s primary responsibility for setting the board agenda.
Aruna Pannala, Partner at Deloitte India, said the changes acknowledge the growing volume of information boards have had to deal with over the years and would enable directors to focus on discussions with greater strategic value.
“The amendments allow boards to spend their limited time on matters that have a strategic impact, while delegating operational matters to executive committees,” she said.
Operational Autonomy
However, experts cautioned that the added flexibility also places greater responsibility on boards to determine which issues warrant their attention, making implementation critical to the success of the new framework.
“A principles-based framework inevitably introduces variability. What constitutes adequate oversight or a ‘material’ amendment warranting full-board attention will now be interpreted institution by institution. The risk is a widening gap between boards that embrace the intent and those that treat lighter prescription as a licence to deprioritise governance,” said Sagar Lakhani, Partner at Uniqus Consultech.
The overhaul comes at a time when governance standards at banks are under heightened scrutiny. The accounting discrepancies at IndusInd Bank and recent governance-related developments at HDFC Bank have sharpened the focus on board oversight, internal controls and the quality of information reaching directors. Against this backdrop, experts say the RBI’s new framework shifts the emphasis from procedural compliance to the effectiveness of board oversight, making governance outcomes — not merely processes — the key measure of board performance.