In order to put banks under the scanner on a range of governance parameters, the Reserve Bank of India (RBI) has set up an eight-member expert panel for reviewing the function of board of banks and examines 'fit and proper' criteria for directors, including their tenure. The panel to be headed by former Axis Bank Chairman P J Nayak and is expected to submit its report within three months from the date of its first meeting.
As per the RBI, the panel will review the regulatory compliance requirements of bank boards and examine their working including whether adequate time is devoted to issues of growth, strategy governance and risk management. The panel will also investigate possible conflicts of interest in board representation, like among owner representatives and regulators. The panel will also examine guidelines on board compensation, which vary vastly between public sector banks, private banks and foreign banks.
Furthermore, the committee will also review central bank regulatory guidelines on bank ownership, ownership concentration and representation in the board and also judge what can be rationalised and where requirements need to be enhanced.
The central bank’s latest move will help to strengthen the domestic banking industry, which is the most dominant segment of the country’s financial sector. Banks help channel savings to investments and encourage economic growth by allocating savings to investments that have potential to yield higher returns. The Indian banking industry’s contribution to GDP moves along with growth in the Indian economy.