Skip to main content

Corporate Governance in Banks - Appointment of Directors and Constitution of Committees of the Board

Reserve Bank of India (RBI) had issued instructions on certain aspects of corporate governance in banks.

To whom are the instructions applicable?

The instructions are applicable to –

  • Private Sector Banks including Small Finance Banks (SFBs) and Payment Banks (PBs)
  • Wholly owned subsidiaries of Foreign Banks

In respect of State Bank of India and Nationalised Banks, the guidelines are applicable to the extent they are not inconsistent with provisions of specific statutes applicable to these banks or instructions issued under the statutes. 

The instructions are not applicable to foreign banks operating as branches in India. 

What are the instructions on Chair and meetings of the Board?

  • The Chair of the board shall be an independent director. 
  • In the absence of the Chair of the board, the meetings of the board shall be chaired by an independent director. 
  • The quorum for the board meetings shall be 1/3rd of the total strength of the board or 3 directors, whichever is higher. 
  • At least half of the directors attending the meetings of the board shall be independent directors.

Which are the Committees of the Board?

Particulars Audit Committee of the Board (ACB) Risk Management Committee of the Board (RMCB) Nomination and Remuneration Committee (NRC)
Constitution of the committee Only non-executive directors.
Chair of the board shall not be member of ACB. 		Majority of non-executive directors.
Chair of the board may be a member of RMCB only if he / she has the requisite risk management expertise. 		Only non-executive directors.
Chair of the committee Shall not be a member of any committee of the board which has a mandate of sanctioning credit exposures.

 

 Shall not be Chair of the board.
Type of attendees for the meeting of the committee At least 2/3rd of the members attending the meeting shall be independent directors. At least half of the members attending the meeting shall be independent directors of which at least 1 member shall have professional expertise / qualification in risk management. At least half of the members attending the meeting shall be independent directors, of which 1 shall be a member of RMCB.
Chair of the meeting of the committee An independent director who shall not chair any other committee of the Board. An independent director who shall not be a Chair of the board or any other committee of the board. An independent director.
Quorum for the meeting 3 members 3 members 3 members
Frequency of the meeting At least once in a quarter. At least once in each quarter. As and when required.
Other criteria for members of the committee All members should have the ability to understand all financial statements as well as the notes / reports attached thereto and at least one member shall have requisite professional expertise / qualification in financial accounting or financial management [e.g., experience in application of accounting standards and practices, including internal controls around it].

 

 

What shall be the age and tenure of non-executive directors?

  • The upper age limit for non-executive directors, including the Chair of the board, shall be 75 years.
  • The total tenure of non-executive directors, continuously or otherwise, on the board of a bank, shall not exceed 8 years. 
  • After completing 8 years on the board of a bank the person may be considered for re-appointment only after a minimum gap of 3 years. This will not preclude him / her from being appointed as a director in another bank.

What shall be the remuneration of non-executive directors?

  • In addition to sitting fees and expenses related to attending meetings of the board and its committees, the bank may pay compensation to non-executive directors in the form of a fixed remuneration commensurate with an individual director’s responsibilities and demands on time and which are considered sufficient to attract qualified competent individuals. 
  • However, such fixed remuneration for non-executive directors, other than the Chair of the board, shall not exceed ₹30 lakh per annum (earlier ₹20 lakh per annum).

What shall be the tenure of MD&CEO and WTDs?

  • The post of the Managing Director (MD) and Chief Executive Officer (CEO) or Whole Time Director (WTD) cannot be held by the same incumbent for more than 15 years. 
  • Thereafter, the individual will be eligible for re-appointment as MD&CEO or WTD in the same bank after a minimum gap of 3 years. 
  • During this 3-year cooling period, the individual shall not be appointed or associated with the bank or its group entities in any capacity, either directly or indirectly.
  • A person cannot continue as MD&CEO or WTD beyond the age of 70 years. 
  • MD&CEO or WTD who is also a promoter / major shareholder, cannot hold these posts for more than 12 years. However, in extraordinary circumstances, at the sole discretion of RBI such MD&CEO or WTDs may be allowed to continue up to 15 years. 
  • Banks shall ensure the presence of at least 2 WTDs, including the MD&CEO, on their Boards. 


References

Reserve Bank of India. (2021, April 26). 'Corporate Governance in Banks - Appointment of Directors and Constitution of Committees of the Board'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12078&Mode=0

Reserve Bank of India. (2023, October 25). 'Appointment of Whole-Time Director(s)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12551&Mode=0

Reserve Bank of India. (2024, February 09). 'Review of Fixed Remuneration granted to Non-Executive Directors (NEDs)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12607&Mode=0


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Framework for recognition of Self-Regulatory Organisation (SRO) for Payment System Operators (PSOs)

Reserve Bank of India (RBI) had released the framework for recognition of Self-Regulatory Organisation (SRO) for Payment System Operators (PSOs). What is the need of Self-Regulatory Organisation (SRO) for Payment System Operators (PSOs)? Industry self-governance helps in industry-wide smooth operations and ecosystem development. RBI’s Payment and Settlement Systems Vision 2019-21 had, therefore, envisaged the setting up of an SRO for PSOs. Accordingly, the framework for recognition of SRO for PSOs was released in October 2020. What shall be the role of SRO for PSOs? An SRO is a non-governmental organisation that sets and enforces rules and standards relating to the conduct of member entities in the industry, with the aim of protecting the customer and promoting ethical and professional standards.  The SRO is expected to resolve disputes among its members internally through mutually accepted processes to ensure that members operate in a disciplined environment and even accept penal ...
Post a Comment
Read more

RBI’s Monetary Policy (December 05, 2025): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on December 05, 2025. Here are some of the highlights of the monetary policy announcement. Rates   Change Rate Policy repo rate Reduced by 25 bps 5.25% Standing deposit facility (SDF) rate 5.00% Marginal standing facility (MSF) rate 5.50% Bank rate 5.50% Monetary policy stance Monetary policy stance unchanged as ‘neutral’. Domestic Economy  Real Gross Domestic Product (GDP) growth accelerated to 8.2% in Q2, buoyed by strong spending during the festive season which was further facilitated by the rationalisation of the goods and services tax (GST) rates.  Real GDP growth for 2025-26 is projected at 7.3%. For the first time since the adoption of flexible inflation targeting (FIT), average headline inflation for a quarter at 1.7% in Q2, breached the lower tolerance threshold (2%) of the inflation target (4%). It dipped further to an all-time low of 0.3% in October 2025. The underlying inflation pressu...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-II – Section 17 to 19

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the second article in the series.  Section 17 – Business which the Bank may transact RBI shall be authorized to carry on and transact the several kinds of business hereinafter specified, namely – 17(1) – Accept deposit without interest from the Central / State Government, local authorities, banks and any other persons. 17(1A) – Accept deposit, repayable with interest, from banks or any other person under the Standing Deposit Facility Scheme, as approved by the Central Board, for the purposes of liquidity management.   Bills of Exchange (B/E) & Promissory Note (PN) Bearing 2 or more good signatures, one of which shall be of B/E & PN arising out of Maturing within 17(2)(a) Purchase, sale and rediscou...
Post a Comment
Read more

Systematically Important Banks (SIBs)

Some banks are identified as systematically important and are subjected to higher capital requirements. When are banks termed as systematically important? What are the additional capital requirements for such banks? And which are the systematically important banks in India? What are Systematically Important Banks (SIBs)? Systematically Important Banks (SIBs) are perceived as banks that are ‘Too Big To Fail (TBTF)’.  Why additional policy measures are required for SIBs? The perception of TBTF creates an expectation of government support for these banks at the time of distress. Due to this perception, these banks enjoy certain advantages in the funding markets. However, the perceived expectation of government support amplifies risk-taking, reduces market discipline, creates competitive distortions, and increases the probability of distress in the future. These considerations require that SIBs should be subjected to additional policy measures to deal with the systemic risks and moral ...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-V – Section 45B to 45JA

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the fifth article in the series.  Chapter IIIA - Collection and Furnishing of Credit Information Section 45B – Power of Bank to collect credit information RBI may collect credit information from banking companies and furnish it to any banking company in accordance with section 45D. Section 45C – Power to call for returns containing credit information RBI may direct any banking company to submit statements relating to credit information. Section 45D – Procedure for furnishing credit information to banking companies A banking company may apply to RBI to provide credit information. RBI shall furnish the requested credit information without disclosing the names of the banking companies which have submitted the information. RBI may levy fees of up to Rs.25 for furnishing credit...
Post a Comment
Read more