Gaps in governance of certain banks despite guidelines: RBI Governor
RBI has come across gaps in corporate governance for certain banks and such gaps have the potential to cause volatility in the overall banking sector, said its governor Shaktikanta Das.
PremiumReserve Bank of India (RBI) has come across gaps in corporate governance for certain banks said Governor Shaktikanta Das pointing out that it is necessary that the official boards and the managements do not allow such gaps to creep in since they have the potential to cause volatility in the overall banking sector. The central bank's Governor made the remarks at the inaugural address at the Conference of Directors of Banks organised by the RBI for public sector banks on May 29.
Das said a robust governance structure is the first and the most important requirement for ensuring the stability of a bank as well as sustainable financial performance while listing out some of the guidelines for banks. The central bank has issued guidelines listing out seven critical themes which need to be discussed in the Board meetings, he added.
They are business strategy, financial reports and their integrity, risk, compliance, customer protection, financial inclusion and human resources. The central bank has also issued guidelines on the appointment of a chairperson and conduct of meetings of the board; composition of important committees of the board; age, tenure and remuneration of directors; and appointment of the whole-time directors.
"It is, however, a matter of concern that despite these guidelines on corporate governance, we have come across gaps in governance of certain banks, with the potential to cause some degree of volatility in the banking sector," Das said. "While these gaps have been mitigated, it is necessary that Boards and the managements do not allow such gaps to creep in."
During his address to the bankers, he added it is the joint responsibility of the Chairman of the Board and the Directors, both whole-time as well as non-executive or part-time Directors, to ensure robust governance in banks.
Das' address to the bankers came at a time when there has been instability in some banks in the US. One of the most prominent lenders in the world of technology startups, Silicon Valley Bank, which was struggling, first collapsed on March 10, after a run on the bank by the depositors.
The closure led to a contagion effect and the subsequent shutting down of other banks - Signature Bank and First Republic Bank. The collapse of the regional banks in the US sent ripples across the global banking industry and posed fears of a spillover effect across economies.
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