The Paper discusses the overall responsibilities of the Board of Directors and its committees in great detail. It also proposes a limited tenure for the CEO/WTD of a bank.

In short, the responsibilities of the Board are as follows:

• To set a culture of responsible and ethical behaviour;
• Oversight of (a) a code of conduct; (b) the bank’s values, which recognises the importance of timely and frank discussion as well as escalation of problems to higher levels within the organisation; and (c) a whistle-blower policy which shall be well operationalised and widely communicated.
• To ensure that adequate policies, procedures and measures are implemented to identify actual/potential/perceived conflicts of interest. It shall have a formal written ‘conflicts of interest’ policy and an objective compliance process to ensure implementation of the policy.
• To oversee a strong risk governance framework which includes well defined organisational responsibilities for risk management, typically referred to as ‘three lines of defence’: (a) first line of defence – the business line; (b) second line of defence – a risk management function and a compliance function independent from the first line of defence; and (c) third line of defence – an internal audit and vigilance function independent from the first and second lines of defence.
• To improve the supervisory oversight of senior management and ensure there is a clear demarcation of duties/responsibilities between the board and management, as also between each of the three lines of defence referred to above. The senior management functionaries will necessarily be clearly identified as belonging to one of the three lines of defence. To avoid conflict of interest within first line of defence, a functionary in non-revenue generating function shall not be sub-ordinate to a functionary who has revenue generating responsibilities. However, the head of a non-revenue generating function within first line of defence can report into the CEO of the bank.
• To support its own performance, the board shall carry out regular assessments of the board , its committees and individual board members – alone or with the assistance of external experts.

Age limit & tenure of CEOs/WTDs : The upper age limit for CEO/WTDs of banks is 70 years. Within the overall limit of 70 years, an individual bank’s board may prescribe, as an internal policy, a lower age limit for CEO/WTDs. The tenure of the WTDs or CEOs is limited to 10 years. It is felt that 10 years is an adequate time limit for a promoter / major shareholder of a bank as WTD or CEO of the bank to stabilise its operations and to transition the managerial leadership to a professional management. This will not only help in achieving the separation of ownership from management but also reinforce a culture of professional management.

Further, in the overall interest of good governance, a management functionary who is not a promoter / major shareholder can be a WTD or CEO of a bank for 15 consecutive years. Thereafter, the individual shall be eligible for re-appointment as WTD or CEO only after the expiration of three years. During this three-year period the individual shall not be appointed or associated with the bank in any capacity, either directly or indirectly, advisory or otherwise.

Banks with WTDs or CEO who have completed 10 or 15 years on the date of issuance of the guideline/directions by the Reserve Bank (basis this discussion paper), shall have two years or up to the expiry of the current tenure, whichever is later, to identify and appoint a successor.

The new guidelines/ direction shall come into effect within a period of six months after being placed on the website of the Reserve Bank or April 1 2021, whichever is later. During this period banks shall ensure that its Memorandum of Association/Articles of Association/ any agreements/ board of director or shareholder resolutions/ composition of the board and the committees of the board are consistent with the new guidelines/directions as well as applicable statutes/regulations.

Comments from stakeholders have been invited by 15 July 2020. To refer to the Discussion Paper dated 11 June 2020, click here.

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