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RBI’s discussion paper on commercial banks

It is a well-known fact that the outcome of the board’s meeting is recorded in the minutes in accordance with Secretarial Standards. However, the paper suggests that the CEO needs to disclose the outcome of the board’s deliberations to the directors and the concerned personnel. Imposing such an obligation on the CEO is ignorant of the fact that the same is already captured in the minutes of the meeting and can be referred to by the directors and the like.

Eshvar Girish

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The growing size and frequent complexities in the banking sector posed grave threats to the corporate governance standards of banks in India. Further, there was a need for reforms to effectively regulate the role of the management and the promoters in banks to curb governance failures. Against this backdrop, RBI floated a discussion paper (paper) on June 11, 2020. At the outset, the paper is highly influenced by the reforms of the Basel Committee on Banking Supervision (BCBS) which is in consonance with global best practices. With this background, this article aims to analyze the reforms suggested by RBI to resolve the issues that exist in the governance of banks.

 Applicability of the provisions

 The paper states that the reforms suggested by it are not applicable to the banks where the government is the major shareholder or promoter i.e., where the government retains its instructions. This implies that whenever instructions are issued by the government, it will override the reforms which come into force based on the recommendations of the paper. Such a proposition put forth by RBI would be a major hindrance in the corporate governance of banks. The fact that the government is retaining its power to exercise control over banks where it has pecuniary interests is arbitrary and must be done away with. Further, this would give rise to a lopsided narrative wherein there is no level-playing field between the banks in which the government is not a major stakeholder and banks that are controlled by the government. Moreover, such a regressive measure suggested by RBI in favor of the government puts the rectitude of RBI’s reforms in peril.

Ambiguity in certain definitions

Corporate governance can be defined as a system of direction and control that mandates how a company’s board must conduct the operations of a company. However, it is necessary to point out that the paper has vaguely defined corporate governance as a set of relationships between the management, shareholders and other stakeholders of the company. While such a definition is adopted from the BCBS, it fails to effectively define the term. The author suggests that a much streamlined definition for corporate governance must be incorporated by the RBI in order to avoid any ambiguities in the interpretation of the same.

Further, it is evident that the term non-executive director (NED) is defined in an ambiguous manner as well since it has been defined as a member of the board who is devoid of responsibilities within the bank. This definition implies that NEDs have no responsibilities at all with respect to the management of the bank. Such a flawed implication about the role of the NEDs in banks must be revisited by RBI since such directors are obligated to perform non-executive functions within the bank. Essentially ruling out all the responsibilities of such directors who form a part of the board would be a major setback to the corporate governance of banks.

When it comes to the aspect of risks, the paper has laid down multiple definitions for the terms which are inextricably intertwined. For instance, ‘Risk Appetite’, ‘Risk Capacity’, ‘Risk Limits’ and ‘Risk Culture’ directly or indirectly deal with the same aspect, i.e., the amount of risk that a bank can take. Instead of delineating this definition into four different terms, an inclusive definition which encompasses all the four definitions can be brought under a single term to preclude any ambiguity. Similar treatment must be extended to to risk management as well, since it has unnecessarily been delineated into three different terms such as ‘Risk Management’, ‘Risk Governance Framework’ and ‘Risk Appetite Framework’ respectively. Including all the definitions under a single term would not only be easier to comprehend but also to implement for the banks.

Formation of board committees

The paper has suggested the formation of five different board committees. Firstly, an audit committee of the board (ACB) which shall be constituted only by NEDs. The meetings will be conducted with a quorum of three members of which two-thirds will comprise of independent directors. Further, the ACB will be chaired by an independent director who will not chair any other committee of the board. This is a sound reform since the paper also suggests that the chair will answer shareholder queries at the Annual General Meetings.

Secondly, a risk management committee of the board (RMCB) that shall be made up of three NEDs out of which two-thirds will be independent directors. Further, one of the independent directors needs to have risk management expertise. However, the author contends that it more desirable that all members of the board possess risk management expertise since it is the sole purpose of the committee. It is desirable that the chairperson and the chief executive officer are also members of the RMCB as their inputs on risk management can prove to be crucial for the risk management of the bank.

Thirdly, a nomination and remuneration committee (NRC) shall be made up of three non-executive directors of which atleast half will constitute independent directors. Further, one of the directors of the NRC needs to be a member of the RMCB. However, a clarification is needed on why such commonality of membership has been recommended only for the NRC and not for any other committees.

Fourthly, the stakeholders relationship committee for which the composition has not been mentioned in the paper. It is desirable that RBI provides suitable clarifications regarding the composition and the functions of this committee.

Fifthly, the committees of the board performing management function shall consist of directors who are not a part of any other committees. This board has been vested with the supervisory functions of the board and does not have anything to do with the management of the board.

 Disregarding the role of the CEO

It is a well-known fact that the outcome of the board’s meeting is recorded in the minutes in accordance with Secretarial Standards. However, the paper suggests that the CEO needs to disclose the outcome of the board’s deliberations to the directors and the concerned personnel. Imposing such an obligation on the CEO is ignorant of the fact that the same is already captured in the minutes of the meeting and can be referred to by the directors and the like.

Further, the CEO has been given the responsibility to prepare and circulate the agenda and the minutes of the meetings to the directors. This responsibility vests with the company secretary of the bank and equating the CEO’s responsibility to that of the company secretary is impractical as the CEO needs to look after other significant functions of the bank.

 Limit on the tenure of the CEO

The paper suggests that any major shareholder or promoter of the bank can hold the position of the CEO only for a term of 10 years whereas non promoters can hold the position for 15 years. Through this reform, RBI aims to put in place a robust governance framework for banks and ensures that ownership of the bank is separated from that of the management. The author contends that this is a sound reform suggested by RBI and can considerably improve the corporate governance structure of banks in India.

Less importance to company secretaries

The paper has failed to give significance to company secretaries as it provides for separate secretaries for each of the committees mentioned earlier. The author contends that the RBI must consider appointing the company secretary as the only secretary for all the committees owing to the similar compliance requirements and similar procedural mandates. Also, the expertise and experience of the company secretary in this regard must be taken into consideration by the RBI.

Moreover, the paper states that the company secretary needs to report to the chair of the board instead of the entire board. It is important to realize that the company secretary is a secretary to the entire board and not the chair alone. This suggestion by RBI is detached from the reality that the CEO is the head of the board and not the chair. Further, this also causes a disruption in the unity of command which vests with the CEO and not the chair. Therefore, it is advisable that the company secretary reports to the entire board as all members of the board play a significant role in the management of the bank.

Emphasis on the role of independent directors

 The paper suggests that independent directors must have an important role to play in the critical matters of the bank. This is evident from the fact that the majority of the bank’s board must consist of independent directors. Further, the paper also suggests that every meeting of the board must have a majority of independent directors. Also, the critical functions of the banks will now be handled by the sub-committees of the board that are headed by independent directors. Thus, this enables the independent directors to have an active role in the day to day operations of the bank.

 The author contends that RBI’s reform with respect to upholding the ‘independence’ of the independent directors is an essential reform for the good corporate governance of banks. The effective implementation of this reform will enable independent directors to voice their thoughts without being outshined by the higher management. Further, the independent directors can now play a key role in assisting the board to take informed and well-contemplated business decisions. Moreover, this reform can bring about a much needed change in the corporate governance of public sector banks where the nominee director’s actions is heavily dictated by the directions of the chairman, government nominee and the RBI representatives respectively.

Closing Remarks

 Overall, the discussion paper is well intended but suitable clarifications needs to be provided by RBI on certain aspects of the paper as pointed out by the author. Further, the ambiguity in certain reforms suggested by the RBI needs to be addressed adequately. The fact that the paper extends more responsibilities to the independent directors might create friction between them and the higher management and how this will play out in the banking sector remains to be seen.

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Media and Entertainment sector should grow to more than 100 billion dollars by year 2030: Apurva Chandra

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The Union Secretary for Information and Broadcasting Apurva Chandra has exhorted the media and entertainment industry to set a target of growing the industry to more than 100 billion dollars by the year 2030. “India will be a 10 trillion dollar economy in the next 10 years, we should target that the media and entertainment sector should grow to more than 100 billion dollars by 2030. The Ministry of Information and Broadcasting will do whatever it takes to support the M&E sector and help it grow.” The Secretary was addressing the inaugural session of FICCI Frames Fast Track 2022 in Mumbai today, September 27, 2022.
The Secretary announced that Invest India is going to be leveraged in order to bring in higher foreign investment into India in the film sector. “The Ministry has merged various film units under one; NFDC based in Mumbai is going to be the hub of the cinematic arm of the government. With this, we want to revamp the Film Facilitation Office. We are going to hand this over to Invest India, the main investment arm created by the government under the leadership of Prime Minister Narendra Modi, to attract industry to India. More than 100 billion dollars of FDI is coming to India this year. We want to leverage Invest India to bring in foreign investment, we will reach out to foreign filmmakers to come to India.”
The Secretary informed that the government will work with states to facilitate and promote film shooting in India. “Recently at Cannes Film Fesival, we announced Incentive Scheme for Audio-Visual Co-production and Incentive Scheme for Shooting of Foreign Films in India. With incentives given by states too, it becomes a viable and attractive package for filmmakers.”
The Secretary announced that the Government of India will work with the states and formulate a Model Theatre Policy. “Over the past 5-6 years, the number of theatres has been on a decline. We need to reverse this trend. We will assign the Film Facilitation Office to work with Invest India to come up with a single-window portal for opening theatres, so that more and more theatres can come up and the public gets more avenues to watch the magic of films in theatres. We will also work with the states to create a Model Theatre Policy, so that the states can adopt and work on the same.”
Please read concluding on thedailyguardian.com

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Conference on eco-alternatives to banned single use plastics and air quality management

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A Conference of startups and innovators working on eco-alternatives to banned single use plastics and air quality management was inaugurated on 27th September 2022 at Chennai Trade Centre, Chennai, by Ashwini Kumar Choubey, Minister of State for Environment, Forest and Climate Change and Consumer Affairs, Government of India in the august presence of Siva V Meyyanathan, Minister of Environment, Climate Change, Youth Welfare and Sports Development, Government of Tamil Nadu. The Startup Conference has been jointly organized by the Ministry of Environment, Forest and Climate Change, Government of India, and Government of Tamil Nadu.
Startups and innovators have been involved in developing solutions for many pressing environmental challenges including in the development of eco-alternatives to banned single use plastics and air quality management.
Ashwini Kumar Choubey, Minister of State for Environment, Forest and Climate Change and Consumer Affairs highlighted that availability of alternatives to banned single use plastic items is extremely important. The Startups and innovators have taken up this challenge and developed eco-alternatives. One Startup has made packaging material from rice stubble. The innovation not only addressed plastic pollution but will also help in reducing the pollution caused by burning of rice stubble. Another startup has developed flexible packaging material from sea weeds. He highlighted that the startups and innovators are not only providing solutions to environmental problems but also assisting in economic development of the country. The Government of India is giving focus on supporting innovators and startups through various schemes of the Government such as Startup India Mission.
Many startups and innovators from across the country working in the area alternatives to banned single use plastic items and air quality management are participating in the Startup Conference. Representatives from concerned central Ministries involved in supporting innovation, startups, and MSMEs and banks who are key in mobilizing finances for startups and manufacturers are participating in the Expo. Representatives from State Governments, State Pollution Control Boards are participating in the Startup Conference.
The Conference of Startups will provide a platform for engagement and exchange views amongst innovators and institutions, Government Departments supporting startup ecosystems in the country and banks, on steps taken for scaling up innovations and supporting startups.
The Conference will have experience sharing sessions of startups working in the field of alternatives to banned single use plastics and startups working in the area of air quality management.
A separate session on role of financial institutions in scaling up startups has also been organized representatives of Startup India Mission, banks and Ministry of Micro, Small and Medium enterprises has also been organized.
The Minister mentioned that the strategy adopted by the Government to tackle unmanaged and littered plastic waste has two pillars to ban single use plastic items which have high littering potential and low utility, and implementation of extended producer responsibility on plastic packaging. Promotion of innovation and startups for elimination of single use plastics will help us address the problem of littered and unmanaged plastic waste in the country.

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497 Railway stations made Divyangjan friendly by providing either lifts or escalators

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s a part of ‘Sugamya Bharat Abhiyan’, to provide ease of movement for Divyangjans, aged and children on railway platforms, Indian Railways is installing lifts and escalators at railway stations across the country. So far, there are 497 stations where either lifts or escalators have been provided.
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So far, 1090 Escalators at 339 stations have been provided upto Aug’2022. Yearwise position of provision of Escalators is as under:-
Lifts:- As per policy, GM/Zonal Railways are empowered to select stations/platforms for provision of Lift considering footfall, constraints of space etc.
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Prime Minister attends State Funeral of former Prime Minister of Japan Shinzo Abe

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Prime Minister Narendra Modi attended the State Funeral of former Prime Minister of Japan Shinzo Abe at the Nippon Budokan, Tokyo. Representatives from over 100 countries, including more than 20 Heads of State / Government participated in the State Funeral.
Prime Minister honoured the memory of former PM Abe, who he considered a dear friend and a great champion of India-Japan partnership.
Following the State Funeral, Prime Minister had a private meeting with Mrs. Akie Abe, spouse of Late PM Abe, at the Akasaka Palace. Prime Minister Modi conveyed his heartfelt condolences to Mrs. Abe. He recalled his fond friendship and the significant contribution made by former PM Abe in taking India-Japan relationship to new heights. Prime Minister also had a brief interaction thereafter with Prime Minister Kishida to reiterate his condolences.

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Amit Shah lays foundation stone of 750 bedded hospital in Gujarat

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Amit Shah

The Union Home and Cooperation Minister, Amit Shah today inaugurated the 150-bedded ESIC Hospital and laid the foundation stone for the 750 bedded Adarsh Multi-specialty Hospital of Umiya Mata K.P Educational Trust in Kalol, Gujarat. Chief Minister of Gujarat, Shri Bhupendra Patel, Union Minister of Health and Family Welfare, Shri Mansukh Mandaviya, Union Minister of Labour and Employment, Shri Bhupendra Yadav and Minister of State for Labour and Employment, Shri Rameshwar Teli were also present on the occasion.
In his address, Amit Shah said today the bhoomipujan is taking place for two big hospitals in Kalol. He said from these hospitals, Kalol tehsil and all the citizens of the city would receive good treatment facilities. Shri Shah said 35 percent poor patients would receive free health care in the hospital being built by Umiya Mataji Kadwa Patidar Trust. Shri Shah said under the leadership of Prime Minister Narendra Modi and under the guidance of Union Labour Minister Shri Bhupendra Yadav, the Employee State Insurance Scheme has been revived and workers across the country are receiving its benefits. He said Prime Minister Narendra Modi has given the Right to health to every person of the country, especially the poor. Under the Pradhan Mantri Ayushman Yojana, Prime Minister Narendra Modi has provided free health facilities up to Rs. 5 lakh to 60 crore poor persons.
The Union Home Minister said Ayushman Health Infrastructure Mission worth Rs. 64,000 crore is the first such big scheme for the poor. Under this scheme, Prime Minister Narendra Modi has provided 35,000 new beds for critical care in more than 600 districts. The Government led by Prime Minister Narendra Modi has also started Integrated Public Health Laboratories in 730 districts and research centers with an allocation of Rs. 1,600 crore for different major diseases.
Amit Shah said there were only 387 medical colleges in the country in 2013-14 and Prime Minister Narendra Modi increased their number to 596 in 2021-22. The Government led by Prime Minister Narendra Modi increased the number of MBBS seats from 51,000 to 89,000. The Post Graduate seats have also been increased from 31,000 to 60,000. Apart from this, 10 new AIIMS have been started, 75 new medical colleges have been approved, and there are plans to set up 22 more AIIMS.
Amit Shah said Gujarat has also made great progress on parameters of maternal mortality, infant mortality and institutional delivery as compared to the figures of 2018. He said it is very difficult to improve the maternal mortality rate and infant mortality rate and in institutional delivery, 96 out of 100 deliveries take place in the hospital today. Shri Shah said Gujarat has also made excellent progress in the sex ratio. He said a special campaign is being run for tuberculosis and cancer, under which these diseases can be diagnosed at an early stage. In two tehsils of Gandhinagar district, Gandhinagar and Kalol, cancer screening has been completed in about 80 percent of the rural areas.

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Amid Rajasthan crisis, Rahul Gandhi: ‘BJP-RSS wants people to fight…’

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WILL RAHUL GANDHI’S YATRA PAY OFF?

At the completion of the 19th day of the Bharat Jodo Yatra, the grand old party’s effort to connect with the people of the nation, Congress leader Rahul Gandhi yet again slammed the Modi government on Monday. His new comments, which were directed at the BJP, came even as his party was dealing with tensions in Rajasthan politics.

In a tweet, the 52-year-old Congress MP wrote in Hindi what he has often said before: “Today, loans worth billions of rupees are being waived off for big industrialists. But if a small trader or a farmer cannot repay even a small loan, he is declared a defaulter, and put in jail.”

Bharat Jodo Yatra is against every injustice. Raja ke yeh do Hindustan, Bharat sweekar nahi karega (These two versions of the country, India won’t accept),” he further added.

At a speech following the end of the 19th day of the ‘Bharat Jodo Yatra’, Gandhi said, “The BJP-RSS wants this river (people at this rally) to get divided, wants residents to fight with each other. They want a river where if somebody falls, nobody picks him up and where everybody is alone. They run the country by dividing it and spreading hatred”.

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