Corporate Governance in Banks: RBI's instruction ahead of master direction

Manish Mehra | Last updated: 02 May 2021

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Quick Summary

The Reserve Bank of India has issued new instructions concerning corporate governance in commercial banks ahead of its Master Direction on Governance. These rules focus on the board chair being an independent director, quorum requirements, and the composition of key committees like the Audit, Risk Management, and Nomination & Remuneration committees. They also outline age limits, tenure, cooling-off periods, and remuneration for directors and Whole-Time Directors (WTDs).

Reserve Bank of India has made a comprehensive review of the framework for governance in commercial banks. Master Direction on Governance will be issued in due course, till then it has been decided to issue instructions regarding the chair of the board, composition of its committee, age, tenure and remuneration of directors/whole time director (WTD).

Following instruction has been made wide notification RBI/2021-22/24 DOR.GOV.REC.8/29.67.001/2021-22 dated 26-04-2021.

Applicability

Private sector bank including Small Finance Bank.
Wholly owned subsidy of Foreign Banks.

(In respect of State Bank of India and Nationalized Banks, these guidelines would apply to the extent the stipulations are not inconsistent with provisions of specific statutes applicable to these banks or instructions issued under the statutes)

RBI Bank Governance Rules: New Instructions Explained

Board

Chair of the board - Independent Director.
Quorum - 1/3^rd of total strength or 3 (whichever is higher)
At least half of the member should be independent director.

Committee of the board

Audit committee of the board (ACB)
Risk Management committee of the board (RMCB)
Nomination and remuneration committee (NRC)

Particulars	ACB	RMCB	NRC
Number of Non-executive director	All	Maximum	All
Chairman	Independent Director who shall not be chairman of other committee	Independent Director who shall not be chairman of other committee along with having expertise in risk management	Independent Director
Quorum (no. of member)	3	3	3
Number of Independent Director	2/3rd of member attending	1/2 of the member attending meeting	1/2 of the member attending meeting and atleast one should be member of RMCB
Number of meeting	Once in a quarter	Once in a quarter	Held as & when required
Member qualification	All member should have ability to understand finance statement and atleast one member should have professional expertise	Atleast one member should have expertise in Risk Management	-

Non-executive Director

Maximum age - 75 years
Total Tenure - continuous/otherwise for 8 years
Cooling period - 3 years
Remuneration - fixed upto Rs 20 Lakhs p.a., sitting fees and other as per statutory norms.

Tenure of MD & CEO or WTD

Upper age limit - 70 year (for Private sector bank)
Maximum tenure for 15 years
Promoter/major shareholder’s tenure (who is MD/CEO/WTD) - 12 years
Cooling period - 3 years

Transition arrangement

Banks are permitted to comply with these instructions latest by October 01, 2021.
If current chair of the board is not an independent director then they are allowed to complete current approved tenure by RBI.
MD & CEO or WTD who already completed 12/15 years shall be allowed completing current approved tenure by RBI.

Attached File : 2286454_44588_rbi_notification_dated_26_04_2021.pdf