RBI sets up a panel to review banks’ corporate governance

MUMBAI: At a time when several corporates and finance companies are aspiring for banking licence, the Reserve Bank of India ( RBI) has formed a panel to review the governance practice followed by banks.

On Monday RBI said that it has formed an expert panel chaired by P. J. Nayak, former chairman and CEO of Axis Bank which will review, among other things, central bank’s regulatory guidelines on bank’s ownership, ownership concentration and representation in the board. Several corporates like Birlas and L&T and large finance companies like IDFC and LIC Housing Finance are among the 25 applicants for banking licence.

The committee will also investigate if there is conflict of interest in board representation, including among owner representatives and regulators. It will assess and review the ‘fit and proper’ criteria for all categories of directors of banks, including tenor of directorship

Interesting, it will also examine board compensation guidelines, which varies vastly between public sector banks, private banks and foreign banks.

The committee will also examine the working of banks’ boards including whether adequate time is devoted to issues of strategy, growth, governance and risk management. It will also review the regulatory compliance requirements of banks’ boards.

The last time RBI formed a similar panel was in year 2002 chaired by A S Ganguly to suggest how to make the role of the board members more effective. However, the report was largely applicable for private banks.

The other members of the committee include S Raman, whole time member of Securities & Exchange Board of India (Sebi), Shubhalakshmi Panse, CMD of Allahabad Bank, Pratip Kar, former ED of Sebi, Joydeep Sengupta, director at McKinsey, Harsh Vardhan, partner, Bain & Company, Somasekhar Sundaresan, partner, J. Sagar Associates and Krishnamurthy Subramanian, assistant professor, Indian School of Business.

RBI has said that the committee is expected to submit its report within three months from the date of its first meeting.