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

Highlights of RBI Annual Report 2025-26 – Chapter 1 to 3

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the first article in the series.  Legal framework for publication of Annual Report by the RBI Report of the Central Board of Directors on the working of RBI for the year is submitted to the Central Government in terms of Section 53(2) of the RBI Act, 1934. The letter of transmittal is signed by the RBI Governor and addressed to the Finance Secretary, Ministry of Finance, Government of India. Documents submitted by the RBI to the Central Government In pursuance of Section 53(2) of the RBI Act, 1934, the following documents have been submitted to the Central Government – A copy of the Annual Accounts for the year ended March 31, 2026 certified by the RBI’s Auditors and signed by Chief General Manager-in-charge, all the Deputy Governors and Governor. 2 copies of the Annual Report of the Central Board on the workin...
Post a Comment
Read more

Trade Receivables Discounting System (TReDS)

Reserve Bank of India (RBI) has issued the directions on Trade Receivables Discounting System (TReDS). What is TReDS? TReDS is a technology platform on a digital or electronic network for facilitating factoring of trade receivables through multiple financiers. What is a Factoring Unit? Factoring unit refers to trade receivable in the form of invoice / bill uploaded either by the seller (in the case of factoring) or by the buyer (in case of reverse factoring), as the case may be. Who are the participants in TReDS? Seller – Micro, Small and Medium Enterprise (MSME) Buyer – any person liable to the seller, whether under a contract or otherwise, against an invoice or bill of exchange, to pay any trade receivable Financier – all entities / institutions permitted to undertake factoring business under the Factoring Regulation Act, 2011 Insurance companies  Credit Guarantee Fund Trust notified by the Government of India Who can operate TReDS platforms? An entity shall seek authorisation fr...
Post a Comment
Read more

Highlights of RBI Annual Report 2025-26 – Chapter 6 (Part I)

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the third article in the series.  Chapter 6 – Regulation, Supervision and Financial Stability (Part I) Opening of and operation in deposit accounts of minors by banks – Minors of any age can open and operate savings and term deposit accounts through his / her natural or legal guardian or with mother as guardian.  Minors above the age of 10 years may open and operate savings and term deposit accounts independently, if they so desire. Digital lending guidelines – Regulated Entities (REs) were mandated to ensure that lending service providers (LSPs) display all loan offers to borrowers when multiple lenders are involved.  A public directory of Digital Lending Apps (DLAs) was introduced to help borrowers verify their link with REs. Non-Banking Financial Companies (NBFCs) were allowed to consider Default...
Post a Comment
Read more

Highlights of RBI Annual Report 2025-26 – Chapter 4 & 5

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the second article in the series.  Chapter 4 – Credit Delivery and Financial Inclusion The limit for collateral free loans to Micro and Small Enterprises (MSEs) was enhanced from ₹10 lakh to ₹20 lakh. The RBI was involved with the nationwide campaign, ‘Aapki Poonji, Aapka Adhikar’ (Your Money, Your Right), conducted during October-December 2025 to facilitate the return of unclaimed deposits and timely settlement of eligible claims from the Depositor Education and Awareness (DEA) Fund. During the campaign, ₹2,876 crore of unclaimed deposits were settled by public sector banks and regional rural banks. Expanding and Deepening of Digital Payments Ecosystem (EDDPE) programme  The programme aims to provide every eligible individual in the identified districts at least one mode of digital payment, viz., debit / ...
Post a Comment
Read more

Transfer of Surplus by the RBI to the Government

The surplus payable by the Reserve Bank of India (RBI) to the Central Government for the financial year 2025-26 amounted to ₹2,86,588.46 crore.  Why does the RBI transfer the surplus amount to the Central Government? As per section 47 of the RBI Act, 1934, after making provision for bad and doubtful debts, depreciation in assets, contributions to staff and superannuation funds and other provisions, the balance of the profits of the RBI is required to be paid to the Central Government. Also, the Central Government holds 100% of the share capital of the RBI. How much risk provision is required to be maintained by the RBI? The RBI developed the Economic Capital Framework (ECF) during 2014-15 and 2015-16 for determining the appropriate level of risk provisions to be made under the provisions of section 47 of the RBI Act, 1934.  In November 2018, the RBI, in consultation with the Government, constituted an Expert Committee to review the ECF of the RBI (Chairman: Dr. Bimal Jalan, fo...
Post a Comment
Read more