{"id":247255,"date":"2023-06-09T19:55:17","date_gmt":"2023-06-09T14:25:17","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=247255"},"modified":"2023-06-09T19:55:17","modified_gmt":"2023-06-09T14:25:17","slug":"rbi-puts-bank-boards-on-notice","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/rbi-puts-bank-boards-on-notice\/","title":{"rendered":"RBI puts bank boards on notice"},"content":{"rendered":"\n

Source<\/strong>: The post is based on the article\u00a0\u201cRBI puts bank boards on notice<\/strong>\u201d published in Business Standard <\/strong>on\u00a09th<\/sup> June 2023<\/strong>.<\/p>\n

Syllabus: GS 3 \u2013 Indian Economy \u2013 Money & Banking<\/strong><\/p>\n

Relevance: <\/strong>About the recent meeting of the RBI governor<\/strong><\/p>\n

News<\/strong>: Recently, the RBI governor held a conference with private as well as public sector banks\u2019 directors.<\/p>\n

What are the excerpts of the meeting?<\/strong><\/h2>\n

The RBI Governor expressed confidence in the resilience of the Indian banking system, due to the implementation of various initiatives.<\/p>\n

For instance,<\/strong> the RBI has implemented established a dedicated vertical for supervisors and a college of supervisors.<\/p>\n

Furthermore, the central bank has ensured a degree of independence for key assurance functions in banks, such as risk management, compliance, and internal audit, <\/strong>through a system of dual reporting to the CEO and the board.<\/p>\n

The RBI’s off-site surveillance<\/strong>, which requires banks to upload raw data to the RBI, has been beneficial in providing an overall view of risks at individual banks and within the system.<\/p>\n

Further, the Annual Financial Inspection report and the Risk Assessment Report (RAR), <\/strong>which the RBI submits to banks, have been crucial at pointing out areas of concern.<\/p>\n

Now, the major problem areas highlighted in the RAR is resolved within a few weeks or months of submission of the report instead of taking too much time.<\/p>\n

Moreover, the RBI governor presented a 10-point charter for bank boards. Out of which, there were few important issues that require serious consideration.<\/p>\n

What were the important issues highlighted by the RBI governor?<\/strong><\/h2>\n

Dominance of CEOs:<\/strong> The RBI governor has said that the dominance of the CEO is the central problem of governance in bank boards.<\/p>\n

He gave the example of the failure of the Royal Bank of Scotland (RBS)<\/strong> during the global financial crisis. Despite having a high-profile board with the necessary skills, the board was unable to prevent the disastrous decisions made by the CEO.<\/p>\n

Further, it becomes difficult for directors to challenge a CEO especially if he or she has a track record of performance. Therefore, directors worry that they may derail a performing CEO.<\/p>\n

Composition of Board Member: <\/strong>Board members are often selected from a limited pool of individuals, including former CEOs, retired bureaucrats, and other professionals.<\/p>\n

They have good relations with the CEOs. Due to which, they find it difficult to challenge the decisions made by the CEOs.<\/p>\n

Further, directors often receive significant compensation, and the CEO plays a crucial role in the renewal of their terms. This creates a situation where directors do not find it suitable in challenging the CEOs.<\/p>\n

Hence, to address the issue, it is necessary to have at least one or two directors whose selection is independent of the CEO and the promoter.\u00a0<\/strong><\/p>\n

Changing the experts:<\/strong> Currently, the board members include experts from the small-scale sector and agriculture specialists.<\/p>\n

However instead of including these experts, the regulator should focus on three areas of expertise: banking, audit, and risk management.\u00a0<\/strong><\/p>\n

What can be the way ahead?<\/strong><\/h2>\n

The RBI governor highlighted the concerns and shortcomings in the banking system.<\/p>\n

He urged boards to value the system of a bank and make it into a healthy corporate sector as it directly impacts the institution’s reputation, stability, and long-term viability.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article\u00a0\u201cRBI puts bank boards on notice\u201d published in Business Standard on\u00a09th June 2023. Syllabus: GS 3 \u2013 Indian Economy \u2013 Money & Banking Relevance: About the recent meeting of the RBI governor News: Recently, the RBI governor held a conference with private as well as public sector banks\u2019… Continue reading RBI puts bank boards on notice<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[10503,216],"class_list":["post-247255","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-3","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704940704},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/247255","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=247255"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/247255\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=247255"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=247255"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=247255"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}