India’s banking regulator on Wednesday proposed rationalizing what bank boards must review, shifting their focus squarely towards strategy and risk oversight while allowing greater delegation of routine matters, in a sweeping governance overhaul.
The Reserve Bank of India (RBI), in a draft circular, suggested consolidating and simplifying board-level responsibilities, removing multiple existing provisions and replacing them with a principles-based framework that clearly defines what must go to the board and what can be delegated.
RBI governor Sanjay Malhotra said the step is aimed at helping boards utilize their time effectively and to facilitate a more focused and qualitative engagement on strategy and risk governance.
“It is important to review these instructions periodically because, when they are issued, they are often not examined in a comprehensive manner. Each circular is looked at in isolation, without assessing the overall expectations from bank boards and the pressure it places on their time,” he said.
“One had been hearing from the boards that a lot of operational matters are also coming to the bank board, as a result of which they are not able to concentrate on real policy and strategic matters. And so that is why we have brought these measures.”
While he didn't explicitly cite recent events, the tightening of board accountability follows heightened scrutiny of governance practices in private banks, especially after the sudden exit of former HDFC Bank chairman Atanu Chakraborty on 18 March.
Chakraborty resigned with immediate effect from the board, citing “certain happenings and practices within the bank” that were “not in congruence” with his personal values and ethics, prompting questions on oversight and internal controls at India’s largest private bank.
Following his resignation, in a late-night announcement, HDFC Bank said the central bank had approved the appointment of board member and HDFC group veteran Keki Mistry as an interim part-time chairman for three months from 19 March.
“…RBI’s move to simplify regulatory guidance will enable bank boards to have a sharper focus on strategic priorities, further strengthening their risk and governance capabilities,” said State Bank of India (SBI) chairman C.S. Setty.
RBI proposals
At the core of the reform is a new framework that consolidates all board-level matters into structured appendices while allowing flexibility.
“The board may, at its discretion, delegate certain aspects of these matters to a board committee/management committee, as indicated in the appendices. The review of policies required to be placed before the board for approval may be delegated to board committees, with the board approving only material amendments to such policies,” the draft circular said.
Boards will now approve only material amendments to policies, with the definition of materiality left to them.
RBI has also deleted several earlier paragraphs, effectively removing prescriptive requirements and replacing them with a principle-based regime.
At the same time, a new Paragraph 11A strengthens board oversight in three key areas: risk management systems and strategy, exposure to related entities, such as subsidiaries, and adherence to corporate governance standards.
The new framework also emphasizes accountability and clarity. “The ultimate responsibility for the bank’s performance, conduct and control rests with the board. It may, however, delegate certain matters to the board committees/sub-committees/senior management, along with reporting requirements as may be necessary,” the circular said.
Boards must clearly articulate the matters reserved for their approval, ensure adequate time for strategy and risk, and define the nature, level of detail, and frequency of information received from management.
The chairperson is explicitly made responsible for setting the board agenda, while periodic reviews of agenda quality, timelines and information flow are mandated.
The circular has laid out a list of policy matters requiring board approval, covering credit policy, investment policy and valuation norms, risk management, digital banking and key decisions such as CEO appointments, among others.