The Reserve Bank of India (RBI) proposed a significant overhaul of governance norms for banks, releasing
draft amendment directions that seek to shift board functioning from a rule-based framework to a principle-driven approach. RBI has underlined that bank boards must ensure that adequate time is devoted to strategic issues and risk governance, rather than routine operational matters. The proposed changes mark a broader shift by the central bank towards modernising governance standards and aligning them with evolving risks and complexities in the financial system.
RBI's move follows a comprehensive review of existing instructions governing matters that must be placed before bank boards. At present, boards operate under a framework guided by seven broad themes prescribed by RBI, along with several mandated policies and issues requiring approval, review or information.
The regulator now intends to replace these themes with principle-based guidance, aiming to enable boards to use their time more effectively and engage more meaningfully in strategic and risk-related deliberations.
Under the revised framework, boards will be required to exercise closer supervision over risk management systems, policies and strategies, as well as exposure to related entities, including lending and investments in subsidiaries. The amendments also emphasise adherence to corporate governance standards, covering the composition and functioning of board committees and the frequency and quality of their meetings.
The draft directions propose the deletion of several existing provisions, signalling a move away from prescriptive compliance requirements towards a more flexible and outcome-oriented regime. At the same time, RBI has clarified that while boards may delegate certain responsibilities to board committees, sub-committees or senior management, the ultimate responsibility for a bank’s performance, conduct and control will remain with the board.
The proposed framework requires bank boards to clearly articulate which matters are reserved for their approval and which are to be placed before them for information or reporting. It also calls for boards to define the nature, level of detail and frequency of information they require from management to discharge their responsibilities effectively. While boards may rely on internal information, they will also have the option to seek external reports where necessary, RBI says.
A notable aspect of the draft is the emphasis on improving the quality of board deliberations. The chairperson of the board has been assigned primary responsibility for setting meeting agendas, ensuring that critical issues are prioritised.
The amendments also introduce a requirement for periodic review of governance processes. Bank boards will need to regularly assess the matters placed before them, the responsibilities delegated to committees and management, and the adequacy and timeliness of information provided for decision-making. This includes evaluating the quality of agenda notes and the time allocated for key discussions.
To simplify compliance and improve clarity, RBI has proposed compiling all policies and matters that need to be placed before boards into structured appendices. This consolidation is expected to reduce fragmentation arising from multiple circulars and provide banks with a clearer reference framework.
The draft also allows boards to delegate the review of policies to committees, while retaining approval authority for material amendments, the contours of which must be defined by the boards themselves.
The revised provisions will apply not only to commercial banks but also, with suitable modifications, to private sector banks. In parallel, RBI has issued similar draft amendment directions for small finance banks, payments banks and local area banks, indicating its intent to harmonise governance practices across different segments of the banking sector.
The draft directions have been issued under the powers conferred by Section 35A of the Banking Regulation Act, 1949, which allows the RBI to act in the public interest. If finalised, the amended governance framework will come into effect from 1 September 2026.
The central bank has invited comments from regulated entities, stakeholders and members of the public on the proposed changes by 7 May 2026.
The RBI has asked stakeholders to submit their feedback through its ‘
Connect 2 Regulate’, as part of its consultative approach to regulatory reform.
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