Tag: Board

Calling attention to situations where both bank management and Boards had become cozy, RBI Governor Shaktikanta Das on Tuesday underscored the importance of the active role of the Board, especially in challenging the proposals of the management.

Avoid herd mentality

Banks should ensure that their business models and business strategies are conscious choices, following a robust strategic discussion in the Board, instead of being driven by mechanical ‘follow the market’ approach, Das said at the SBI Banking and Economics Conclave

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The Governor emphasised that in their endeavour to grow, banks should avoid herd mentality and look for differentiated business strategies.

Business strategies

He observed that the RBI has started taking a closer look at business models and strategies of banks.

“Certain banks had followed the high-risk and high-return business strategy, with a skewed priority for serving only the interest of their investors.

“The active role of the Board, especially in challenging the proposals of the management, thus becomes critical,” Das said, adding that this will contribute towards a more diligent and balanced approach to decision making.

Particular roles

The Governor observed that RBI’s intention is not to create divergence between the Board and the management.

The management has a certain role and the Board has a certain role. And each is expected to play that role, he said.

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Referring to his earlier remark that the Board should challenge certain norms, certain risk taking practices and certain models of the management, Das said this is only to ensure that the right decision is taken.

“And the Board, which is in charge of oversight of the bank, is expected to play that role as a guide and to discharge its oversight functions in a prudent manner…Let me clarify we don’t want a fight between the Board and the management,” he said.

Responsibility towards depositors

The Governor noted that the Board of Directors carry the responsibility of being guardians of the trust that depositors have reposed in a bank.

A bank’s responsibility towards depositors should, therefore, be weighed against its responsibility towards shareholders of the bank.

“To ensure good governance, the Reserve Bank has high expectations from the oversight role of the Board, its composition, Directors’ skill profile, strong risk and compliance structure and processes, more transparency and a robust mechanism of balancing various stakeholder interests.

“Thus, business priorities need to be complemented with responsible governance and ethical actions,” he said.