Corporate Governance in Banks Overview

Study Notes

A discussion paper titled “Governance in Commercial Banks in India” was issued by the Reserve Bank of India (RBI) on June 11, 2020, aimed at reviewing governance frameworks in commercial banks.
Following feedback, RBI plans to release a Master Direction on Governance in due course.

Revised instructions apply to all Private Sector Banks, including Small Finance Banks (SFBs) and wholly owned subsidiaries of Foreign Banks.
For the State Bank of India and Nationalised Banks, guidelines will apply unless inconsistent with specific statutory provisions.
Guidelines do not apply to foreign banks operating as branches in India; other commercial banks will be addressed separately.

The Chair of the board must be an independent director, with meetings chaired by an independent director in the Chair’s absence.
A quorum for board meetings is defined as one-third of total board strength or three directors, whichever is higher, with at least half being independent directors.

Audit Committee (ACB)
- Composed of only non-executive directors (NEDs); the Chair of the board cannot be a member.
- Quorum of three members with at least two-thirds being independent directors.
- Committee must meet quarterly and be chaired by an independent director without membership in other credit sanctioning committees.
Risk Management Committee (RMCB)
- Must have a majority of NEDs and a quorum of three members, with at least half being independent directors.
- Meetings chaired by an independent director who is not the Chair of the board.
- At least one member must have professional risk management expertise, with quarterly meetings required.
Nomination and Remuneration Committee (NRC)
- Composed solely of NEDs, with a quorum of three members.
- At least half must be independent directors, including one member from the RMCB.
- Chaired by an independent director, and the Chair of the board cannot lead this committee.

Upper age limit for NEDs, including the Chair, is set at 75 years; no continuance beyond this age.
Total tenure of NEDs on a bank's board is capped at eight years, with a minimum gap of three years before re-appointment is possible.

In addition to meeting-related fees and expenses, NEDs can receive fixed remuneration not exceeding ₹20 lakh per annum, except for the Chair of the board.

A maximum tenure of 15 years for MD&CEO or WTD positions, with a mandatory three-year gap for re-appointment.
No individual can serve beyond the age of 70 years for MD&CEO or WTD roles, although banks can set lower retirement ages internally.
MD&CEO or WTD who is also a promoter/major shareholder can serve a maximum of 12 years, extendable to 15 years under exceptional circumstances.

Institutions are allowed until October 1, 2021, to comply with these revised requirements.
Existing Chairs who are not independent can complete their current term.
MD&CEOs or WTDs already exceeding tenure limits before the effective date may complete their terms as approved.