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RBI Moves to Shake Up Governance at Banks
The Reserve Bank of India’s discussion paper on “Governance in Commercial Banks in India” is refreshing in that it takes an approach to governance that is ownership-neutral. This shows a recognition that there are governance issues at private banks, not just at public sector banks. The significant proposal is distancing of four key functions at banks from the chief executive officer. The RBI may benefit from incorporating radical proposals made in other places such as the United Kingdom.
Corporate governance has been work-in-progress for some three decades now. The leisurely pace of improvement may be affordable at non-bank companies. Not so in the banking sector. The task of improving governance at banks has taken on a certain urgency after the upheavals caused by the global financial crisis of 2007.
The global crisis, as everybody knows, highlighted failures at banks on the part of boards of directors, the top management, the regulator and supervisor, lawmakers and the government. Numerous committees the world over have since proposed reforms in the banking sector, including governance reforms.
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