Boards of directors of banks must diligently discharge supervisory functions: Governor of the RBI

Stressing that bank managements and boards have become comfortable in their roles, RBI Governor Shaktikanta Das underscored the active role of boards, especially in challenging management’s proposals.

Banks should make sure that their business models and business strategies are conscious choices, after a solid strategic discussion in the board, instead of being a mechanical approach to ‘follow the market’, Das said. during the SBI’s banking and economic conclave here on Tuesday.

Growth strategies

The head of the Reserve Bank stressed that in their effort to grow, banks should avoid the herd mentality and seek differentiated business strategies.

He said the RBI has started to take a close look at banks’ business models and strategies.

“Some banks had followed the high-risk, high-return business strategy, with a biased priority of serving only the interests of their investors.

“The active role of the board, especially in challenging management’s proposals, therefore becomes essential,” said Das, adding that this would contribute to a more diligent and balanced approach to decision-making.

Das said the RBI’s intention is not to create a rift between the board and management.

The latter has a certain role and the former has a certain role. And everyone should play that role, he said.

Referring to his previous remark that the board should question certain standards, certain risk-taking practices and certain management models, Das said this was only meant to ensure that the right decision is made.

“And the board of directors, which is in charge of the supervision of the bank, should play that guiding role and carry out its supervisory functions in a prudent manner … Let me clarify, we don’t want to of a fight between the board of directors and the management ”, he declared.

Responsible governance

The governor noted that the board has a responsibility to be the custodian of the trust depositors have deposited in a bank.

A bank’s liability to depositors must therefore be weighed against its liability to the bank’s shareholders.

“To ensure good governance, the Reserve Bank expects a lot from the supervisory role of the board of directors, its composition, the skills profile of the directors, a solid structure and processes in terms of risk and compliance,” more transparency and a strong mechanism to balance the interests of various stakeholders.

“Thus, business priorities must be complemented by responsible governance and ethical actions,” he said.

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