Governance overhaul: RBI to usher in principle-based framework for banks

The RBI’s updated directions cover both public‑sector and private‑sector banks, creating an equal governance framework.

The Reserve Bank of India (RBI) is introducing a principle‑based approach that lets bank boards hand over routine tasks to committees, while they remain ultimately responsible for strategy, financial health and key personnel appointments.

Ensuring Equal Governance Standards

This allows boards to use their time more effectively and to focus on strategy and risk oversight. Effective October 1, the RBI’s revised directions on ‘Matters to be placed before the Boards of Banks’ apply to both public‑sector and private‑sector banks, establishing uniform governance standards.

Accordingly, the RBI intends to swap the current seven‑item board agenda (strategy, risk, financial reporting integrity, compliance, consumer protection, financial inclusion and HR) for a principle‑based model built around five tenets: ultimate accountability, clear communication, agenda leadership, information provision and regular review.

Under the directions, the board bears final responsibility for the bank’s strategy, financial stability, key personnel appointments, internal structure and governance practices, as well as risk management and compliance.

Nevertheless, the board can assign specific items to its committees or management teams, subject to any needed reporting. It must explicitly state which issues are reserved for its approval versus those meant for information or reporting, while guaranteeing adequate time for strategy and risk oversight.

The RBI notes that the board chairperson leads the meeting agenda. The board must obtain enough information from management to fulfil its duties, define the type and frequency of that information, and may call for external reports when required.

The board must regularly review both the items it will consider and those it has delegated to committees, checking the timeliness of agenda distribution, the sufficiency of information provided, and the time allocated to critical topics.

Policies that must come before the board for approval cover credit, investment, risk management, digital banking, IT, deposit and other liability products, fit‑and‑proper assessment of major shareholders, compensation, CSR and similar areas.

The board may delegate approval for policies on responsible business/lending practices—including customer service tied to conduct—and the issuance of credit/debit cards; the opening, merging, relocating, converting or closing of branches/offices/mobile services; and the appointment or engagement of auditors, including statutory branch auditors.

Non‑policy items that must be brought before the board are the capital plan, capital injections into overseas units, share or voting‑right acquisitions, regulatory capital issuance, shifts between investment categories, new OTC derivative products, dividend declarations and, in voluntary amalgamations, board approval.

At the board’s discretion, it may delegate decisions on lending to directors (or directors of other banks) and their relatives, appointing statutory auditors for overseas branches, the yearly banking‑outlet expansion plan, forming new correspondent‑bank ties, and settling compromised debts classified as fraud or wilful default—except where the management committee originally sanctioned the loan.

Published on July 14, 2026