RBI/DBR/2019-20/71
Master Direction DBR.Appt.No: 9/29.67.001/2019-20

August 2, 2019
(Updated as on June 03, 2020)

Master Direction - Reserve Bank of India (‘Fit and Proper’ Criteria for Elected Directors on the Boards of PSBs) Directions, 2019

In exercise of the powers conferred by sub-section (2) of Section 19A of the State Bank of India Act, 1955 [hereinafter referred to as SBI Act]; and sub-sections (3AA) & (3AB) of Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, Reserve Bank of India [hereinafter referred to as Reserve Bank] being satisfied that it is necessary and expedient in the public interest to do so, hereby notifies and specifies the authority, manner, procedure and criteria for determining the 'fit and proper' status of a person to be eligible to be elected as a director on the Board of Public Sector Banks, and issues the Directions hereinafter specified.

CHAPTER – I
PRELIMINARY

1. Short Title and Commencement:

1. These Directions shall be called the Reserve Bank of India (‘Fit and Proper’ Criteria for Elected Directors on the Boards of PSBs) Directions, 2019.

2. These Directions shall come into effect on the day these are placed on the official website of the Reserve Bank (i.e. www.rbi.org.in).

2. Applicability:

These Directions shall be applicable to Public Sector Banks.

3. Definitions:

(a) In these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below -

1. “Board of Directors” or “Board”, in relation to a bank, means the collective body of the directors of the bank.

2. “Chairperson” means the Chairman/Part-time Chairman of the Board of Directors of a bank.

3. “Corresponding new bank” shall be as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980.

4. “Director” means a director appointed to the Board of a bank.

5. “Elected/Shareholder Director” means a director referred to in section 19(c) of the SBI Act, and clause (i) of sub-section (3) of section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980.

6. “Government of India Nominee Director” means a director referred to in Section 19(e) of the SBI Act and Section 9(3)(b) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980.

7. “Independent Director” shall be as defined in the Companies Act, 2013.

8. “Nationalised bank” means a corresponding new bank constituted under sub-section (1) of section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970/1980.

9. “Non-official director” means director referred to in Section 9(3)(g), (h) & (i) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, and Section 19(c) & (d) of SBI Act.

10. Non-Operative Financial Holding Company (NOFHC) means a non-deposit taking NBFC which holds the shares of a banking company and the shares of all other financial services companies in its group, whether regulated by Reserve Bank or by any other financial regulator, to the extent permissible under the applicable regulatory prescriptions.

11. “Public Sector Banks” means State Bank of India and nationalised banks.

12. “State Bank of India” means the State Bank of India constituted under Section 3 of the SBI Act, 1955.

(b) All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Banking Regulation Act or the SBI Act or the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980 or Companies Act, 2013 or any statutory modification or re-enactment thereto or SEBI Guidelines or as defined elsewhere by the Reserve Bank or used in commercial parlance, as the case may be.

CHAPTER – II
APPOINTMENT OF ELECTED DIRECTORS

4. ‘Fit and Proper’ Criteria for Elected Directors on the Boards of State Bank of India and Nationalised Banks:

Authority

4.1 All the banks are required to constitute a Nomination and Remuneration Committee [hereinafter referred to as the Committee] consisting of a minimum of three non-executive directors from amongst the Board of Directors [hereinafter referred to as Board], out of which not less than one-half shall be independent directors and should include at least one member from Risk Management Committee of the Board, for undertaking a process of due diligence to determine the 'fit and proper' status of the persons to be elected as directors under sub-section (c) of Section 19 of the SBI Act/clause (i) of sub-section (3) of Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980. The Government of India nominee director and the director nominated under section 19(f) of the SBI Act/section 9(3)(c) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980 shall not be part of the Committee. The non-executive Chairperson of the bank may be appointed as a member of the Committee but shall not chair such Committee. The Board should also nominate one among them as Chairman of the Committee. The quorum required is three, including the Chairman. In case the absence of any nominated member results in want of quorum, the Board may nominate any other non-executive director in his place for the meeting. At the time of constituting the Committee, the Board can decide on its tenure.

Manner and procedure

4.2 The banks shall obtain necessary information, and a declaration & undertaking, in the format annexed (Annex 1), from the persons who file their nominations for election. The Committee shall meet after the last date prescribed for acceptance of nominations and determine whether or not the person's candidature should be accepted, based on the criteria mentioned below. The Committee's discussions shall be properly recorded as formal minutes of the meeting and the voting, if done, shall also be noted. Based on the information provided in the signed declaration, the Committee shall decide on the acceptance or otherwise of the candidature and shall make references, where considered necessary, to the appropriate authority / persons, to ensure that the candidate conforms to the requirements indicated.

Criteria

4.3 The Committee shall determine the 'fit and proper' status of the proposed candidates based on the broad criteria mentioned hereunder:

(i) Age – The candidate’s age should be between 35 to 67 years as on the cut-off date fixed for submission of nominations for election.

(ii) Educational qualification – The candidate should at least be a graduate.

(iii) Experience and field of expertise – The candidate shall have special knowledge or practical experience in respect of one or more of the matters enumerated in section 19A(a) of the SBI Act / section 9(3A)(A) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, as the case may be, read with RBI Circular DBR.Appt.BC No 39/29.39.001/2016-17 dated November 24, 2016.

(iv) Disqualifications: In addition to ‘Disqualifications of Directors’ as prescribed in Section 22 of the SBI Act, 1955 / Clause 10 of Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970/80:

1. The candidate should not be a member of the Board of any bank or the Reserve Bank or a Financial Institution (FI) or an Insurance Company or a NOFHC holding any other bank.
   
   Explanation: For the purpose of this sub-para and sub-para (c), the expression “bank” shall include a banking company, a corresponding new bank, State Bank of India, a co-operative bank and a regional rural bank.

2. A person connected with hire purchase, financing, money lending, investment, leasing and other para banking activities shall not be considered for appointment as elected director on the board of a PSB. However, investors of such entities would not be disqualified for appointment as directors if they do not enjoy any managerial control in them.

3. No person may be elected/ re-elected on the Board of a bank if he/she has served as director in the past on the board of any bank¹/FI/RBI/Insurance Company under any category for six years, whether continuously or intermittently.

4. The candidate should not be engaging in the business of stock broking.

5. The candidate should not be holding the position of a Member of Parliament or State Legislature or Municipal Corporation or Municipality or other local bodies².

6. The candidate should not be acting as a partner of a Chartered Accountant firm which is currently engaged as a Statutory Central Auditor of any nationalised bank or State Bank of India.

7. The candidate should not be acting as a partner of a Chartered Accountant firm which is currently engaged as Statutory Branch Auditor or Concurrent Auditor of the bank in which nomination for election is filed.

(v) Tenure – An elected director shall hold office for three years and shall be eligible for re-election: Provided that no such director shall hold office for a period exceeding six years³, whether served continuously or intermittently.

(vi) Professional Restrictions –

(a) The candidate should neither have any business connection (including legal services, advisory services etc.) with the concerned bank nor should be engaged in activities which might result in a conflict of business interests with that bank.

(b) The candidate should not be having any professional relationship with a bank or any NOFHC holding any other bank.

Provided that a candidate having any such relationship with a bank at the time of filing nomination for election shall be deemed to be meeting the requirement under item (b), the candidate shall submit a declaration to the Committee that such relationship with the bank shall be severed if he is elected as a director, and upon being elected, severs such relationship before appointment as a director of the bank.

(vii) Track record and integrity - The candidate should not be under adverse notice of any regulatory or supervisory authority/agency, or law enforcement agency and should not be a defaulter of any lending institution.

5. The banks shall obtain from the elected director:

(a) a Deed of Covenant executed in the format annexed (Annex 2), before such person assumes office of director;

(b) a simple declaration every year as on 31st March to the effect that the information already provided by such person has not undergone any change.

(c) Where the elected director informs that there is change in the information provided earlier, the bank shall obtain from such director a fresh Annex 1 incorporating the changes.

6. The banks shall also -

Ensure compliance to Section 20 of the Banking Regulation Act, 1949. In addition,

(a) Put in place a system of safeguards, including proper disclosure of the elected CA director’s/his firm’s clients, and not participating in bank’s credit/investment decisions involving his/firm’s clients. The elected CA director should be required to compulsorily dissociate himself from the entire process and sign a covenant to this effect.

(b) Require the elected director to make a full and proper disclosure of his interests and directorships in business entities, with the director personally distancing himself from and not participating in the bank’s credit/investment decisions involving entities in which he is interested.

(c) Not allot any professional work to a person who was an elected director of that bank, for a period of two years after demitting office as such director.

7. Where the elected director:

(a) fails to

(i) submit the Deed of Covenant or declaration; or

(ii) make proper disclosures; or

(iii) refrain from participating in credit/investment decisions, where he is interested; or

(b) makes incomplete or incorrect disclosures, or

(c) involves in such activities that render him/her ‘not fit and proper’ as per the criteria mentioned above,

such director shall be deemed to be not fulfilling the requirements of sub-section (2) of section 19A of the SBI Act / sub-section (3AA) of section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980 and shall be liable for the consequences thereof.

8. The Committee shall adopt the revised criteria stated above while scrutinizing the nomination of candidates seeking election as new directors (appointment/re-appointment). However, existing elected directors may be allowed to complete their current terms as per the pre-revised criteria.

CHAPTER – III
INTERPRETATIONS AND REPEAL

9. Interpretations:

For the purpose of giving effect to the provisions of these Directions, the Reserve Bank may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the Reserve Bank shall be final and binding on all the parties concerned.

10. Repeal:

With the issue of these Directions, the instructions/guidelines contained in the following circulars issued by the Reserve Bank stand repealed.

1. DBOD. No. BC.No.47/29.39.001/2007-08 dated November 1, 2007 on ‘Fit and proper’ criteria for elected directors on the boards of nationalised banks.

2. DBOD. No. BC.No. 50/29.39.001/2007-08 dated November 14, 2007 on ‘Fit and proper’ criteria for elected directors on the boards of Associate Banks of SBI.

3. DBOD. No. BC.No. 54/29.39.001/2011-12 dated November 21, 2011 on ‘Fit and proper’ criteria for elected directors on the board of SBI.

4. DBOD. No. BC.No. 56/29.39.001/2011-12 dated November 21, 2011 on ‘Fit and proper’ criteria for elected directors on the board of IDBI Bank Limited.

¹ It includes the bank in which he/she has served as director in the past.

² Other local bodies means bodies such as Notified Area Council, City Council, Panchayat, Gram Sabha, Zila Parishad, etc.

³ Clause 9(4) of Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970/80, and Section 20(3) of the SBI Act

RBI/DBR/2019-20/71
Master Direction DBR.Appt.No: 9/29.67.001/2019-20

August 2, 2019

Master Direction - Reserve Bank of India (‘Fit and Proper’ Criteria for Elected Directors on the Boards of PSBs) Directions, 2019

In exercise of the powers conferred by sub-section (2) of Section 19A of the State Bank of India Act, 1955 [hereinafter referred to as SBI Act]; and sub-sections (3AA) & (3AB) of Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, Reserve Bank of India [hereinafter referred to as Reserve Bank] being satisfied that it is necessary and expedient in the public interest to do so, hereby notifies and specifies the authority, manner, procedure and criteria for determining the 'fit and proper' status of a person to be eligible to be elected as a director on the Board of Public Sector Banks, and issues the Directions hereinafter specified.

CHAPTER – I
PRELIMINARY

1. Short Title and Commencement:

1. These Directions shall be called the Reserve Bank of India (‘Fit and Proper’ Criteria for Elected Directors on the Boards of PSBs) Directions, 2019.

2. These Directions shall come into effect on the day these are placed on the official website of the Reserve Bank (i.e. www.rbi.org.in).

2. Applicability:

These Directions shall be applicable to Public Sector Banks.

3. Definitions:

(a) In these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below -

1. “Board of Directors” or “Board”, in relation to a bank, means the collective body of the directors of the bank.

2. “Chairperson” means the Chairman/Part-time Chairman of the Board of Directors of a bank.

3. “Corresponding new bank” shall be as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980.

4. “Director” means a director appointed to the Board of a bank.

5. “Elected/Shareholder Director” means a director referred to in section 19(c) of the SBI Act, and clause (i) of sub-section (3) of section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980.

6. “Government of India Nominee Director” means a director referred to in Section 19(e) of the SBI Act and Section 9(3)(b) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980.

7. “Independent Director” shall be as defined in the Companies Act, 2013.

8. “Nationalised bank” means a corresponding new bank constituted under sub-section (1) of section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970/1980.

9. “Non-official director” means director referred to in Section 9(3)(g), (h) & (i) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, and Section 19(c) & (d) of SBI Act.

10. Non-Operative Financial Holding Company (NOFHC) means a non-deposit taking NBFC which holds the shares of a banking company and the shares of all other financial services companies in its group, whether regulated by Reserve Bank or by any other financial regulator, to the extent permissible under the applicable regulatory prescriptions.

11. “Public Sector Banks” means State Bank of India and nationalised banks.

12. “State Bank of India” means the State Bank of India constituted under Section 3 of the SBI Act, 1955.

(b) All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Banking Regulation Act or the SBI Act or the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980 or Companies Act, 2013 or any statutory modification or re-enactment thereto or SEBI Guidelines or as defined elsewhere by the Reserve Bank or used in commercial parlance, as the case may be.

CHAPTER – II
APPOINTMENT OF ELECTED DIRECTORS

4. ‘Fit and Proper’ Criteria for Elected Directors on the Boards of State Bank of India and Nationalised Banks:

Authority

4.1 All the banks are required to constitute a Nomination and Remuneration Committee [hereinafter referred to as the Committee] consisting of a minimum of three non-executive directors from amongst the Board of Directors [hereinafter referred to as Board], out of which not less than one-half shall be independent directors and should include at least one member from Risk Management Committee of the Board, for undertaking a process of due diligence to determine the 'fit and proper' status of the persons to be elected as directors under sub-section (c) of Section 19 of the SBI Act/clause (i) of sub-section (3) of Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980. The Government of India nominee director and the director nominated under section 19(f) of the SBI Act/section 9(3)(c) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980 shall not be part of the Committee. The non-executive Chairperson of the bank may be appointed as a member of the Committee but shall not chair such Committee. The Board should also nominate one among them as Chairman of the Committee. The quorum required is three, including the Chairman. In case the absence of any nominated member results in want of quorum, the Board may nominate any other non-executive director in his place for the meeting. At the time of constituting the Committee, the Board can decide on its tenure.

Manner and procedure

4.2 The banks shall obtain necessary information, and a declaration & undertaking, in the format annexed (Annex 1), from the persons who file their nominations for election. The Committee shall meet after the last date prescribed for acceptance of nominations and determine whether or not the person's candidature should be accepted, based on the criteria mentioned below. The Committee's discussions shall be properly recorded as formal minutes of the meeting and the voting, if done, shall also be noted. Based on the information provided in the signed declaration, the Committee shall decide on the acceptance or otherwise of the candidature and shall make references, where considered necessary, to the appropriate authority / persons, to ensure that the candidate conforms to the requirements indicated.

Criteria

4.3 The Committee shall determine the 'fit and proper' status of the proposed candidates based on the broad criteria mentioned hereunder:

(i) Age – The candidate’s age should be between 35 to 67 years as on the cut-off date fixed for submission of nominations for election.

(ii) Educational qualification – The candidate should at least be a graduate.

(iii) Experience and field of expertise – The candidate shall have special knowledge or practical experience in respect of one or more of the matters enumerated in section 19A(a) of the SBI Act / section 9(3A)(A) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, as the case may be, read with RBI Circular DBR.Appt.BC No 39/29.39.001/2016-17 dated November 24, 2016.

(iv) Disqualifications: In addition to ‘Disqualifications of Directors’ as prescribed in Section 22 of the SBI Act, 1955 / Clause 10 of Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970/80:

1. The candidate should not be a member of the Board of any bank or the Reserve Bank or a Financial Institution (FI) or an Insurance Company or a NOFHC holding any other bank.
   
   Explanation: For the purpose of this sub-para and sub-para (c), the expression “bank” shall include a banking company, a corresponding new bank, State Bank of India, a co-operative bank and a regional rural bank.

2. A person connected with hire purchase, financing, money lending, investment, leasing and other para banking activities shall not be considered for appointment as elected director on the board of a PSB. However, investors of such entities would not be disqualified for appointment as directors if they do not enjoy any managerial control in them.

3. No person may be elected/ re-elected on the Board of a bank if he/she has served as director in the past on the board of any bank¹/FI/RBI/Insurance Company under any category for six years, whether continuously or intermittently.

4. The candidate should not be engaging in the business of stock broking.

5. The candidate should not be holding the position of a Member of Parliament or State Legislature or Municipal Corporation or Municipality or other local bodies².

6. The candidate should not be acting as a partner of a Chartered Accountant firm which is currently engaged as a Statutory Central Auditor of any nationalised bank or State Bank of India.

7. The candidate should not be acting as a partner of a Chartered Accountant firm which is currently engaged as Statutory Branch Auditor or Concurrent Auditor of the bank in which nomination for election is filed.

(v) Tenure – An elected director shall hold office for three years and shall be eligible for re-election: Provided that no such director shall hold office for a period exceeding six years³, whether served continuously or intermittently.

(vi) Professional Restrictions –

(a) The candidate should neither have any business connection (including legal services, advisory services etc.) with the concerned bank nor should be engaged in activities which might result in a conflict of business interests with that bank.

(b) The candidate should not be having any professional relationship with a bank or any NOFHC holding any other bank.

Provided that a candidate having any such relationship with a bank at the time of filing nomination for election shall be deemed to be meeting the requirement under item (b), the candidate shall submit a declaration to the Committee that such relationship with the bank shall be severed if he is elected as a director, and upon being elected, severs such relationship before appointment as a director of the bank.

(vii) Track record and integrity - The candidate should not be under adverse notice of any regulatory or supervisory authority/agency, or law enforcement agency and should not be a defaulter of any lending institution.

5. The banks shall obtain from the elected director:

(a) a Deed of Covenant executed in the format annexed (Annex 2), before such person assumes office of director;

(b) a simple declaration every year as on 31st March to the effect that the information already provided by such person has not undergone any change.

(c) Where the elected director informs that there is change in the information provided earlier, the bank shall obtain from such director a fresh Annex 1 incorporating the changes.

6. The banks shall also -

Ensure compliance to Section 20 of the Banking Regulation Act, 1949. In addition,

(a) Put in place a system of safeguards, including proper disclosure of the elected CA director’s/his firm’s clients, and not participating in bank’s credit/investment decisions involving his/firm’s clients. The elected CA director should be required to compulsorily dissociate himself from the entire process and sign a covenant to this effect.

(b) Require the elected director to make a full and proper disclosure of his interests and directorships in business entities, with the director personally distancing himself from and not participating in the bank’s credit/investment decisions involving entities in which he is interested.

(c) Not allot any professional work to a person who was an elected director of that bank, for a period of two years after demitting office as such director.

7. Where the elected director:

(a) fails to

(i) submit the Deed of Covenant or declaration; or

(ii) make proper disclosures; or

(iii) refrain from participating in credit/investment decisions, where he is interested; or

(b) makes incomplete or incorrect disclosures, or

(c) involves in such activities that render him/her ‘not fit and proper’ as per the criteria mentioned above,

such director shall be deemed to be not fulfilling the requirements of sub-section (2) of section 19A of the SBI Act / sub-section (3AA) of section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980 and shall be liable for the consequences thereof.

8. The Committee shall adopt the revised criteria stated above while scrutinizing the nomination of candidates seeking election as new directors (appointment/re-appointment). However, existing elected directors may be allowed to complete their current terms as per the pre-revised criteria.

CHAPTER – III
INTERPRETATIONS AND REPEAL

9. Interpretations:

For the purpose of giving effect to the provisions of these Directions, the Reserve Bank may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the Reserve Bank shall be final and binding on all the parties concerned.

10. Repeal:

With the issue of these Directions, the instructions/guidelines contained in the following circulars issued by the Reserve Bank stand repealed.

1. DBOD. No. BC.No.47/29.39.001/2007-08 dated November 1, 2007 on ‘Fit and proper’ criteria for elected directors on the boards of nationalised banks.

2. DBOD. No. BC.No. 50/29.39.001/2007-08 dated November 14, 2007 on ‘Fit and proper’ criteria for elected directors on the boards of Associate Banks of SBI.

3. DBOD. No. BC.No. 54/29.39.001/2011-12 dated November 21, 2011 on ‘Fit and proper’ criteria for elected directors on the board of SBI.

4. DBOD. No. BC.No. 56/29.39.001/2011-12 dated November 21, 2011 on ‘Fit and proper’ criteria for elected directors on the board of IDBI Bank Limited.

¹ It includes the bank in which he/she has served as director in the past.

² Other local bodies means bodies such as Notified Area Council, City Council, Panchayat, Gram Sabha, Zila Parishad, etc.

³ Clause 9(4) of Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970/80, and Section 20(3) of the SBI Act