Report of the Consultative Group of Directors of Banks / Financial Institutions (Dr. Ganguly Group) - Implementation of recommendations - RBI - Reserve Bank of India
Report of the Consultative Group of Directors of Banks / Financial
Institutions (Dr. Ganguly Group) - Implementation of recommendations
June 20, 2002 DBOD. No.BC. 116 / 08.139.001/2001-02 The Chairman & Managing Directors / Managing Directors Dear Sir, Report of the Consultative Group of Directors of Banks / Financial Institutions The Consultative Group of Directors of banks and FIs set up by Reserve Bank of India to review the supervisory role of Boards had submitted its report in April 2002 and the same was put in our website (www.rbi.org.in) for wider dissemination and comments from banks and other experts (A copy of the report is enclosed for ready reference). We have examined the recommendations of the Group. In view of the importance of the recommendations made by the Group for effective functioning of banks, we would request you to place the Report as well as the list of recommendations enclosed as Annexure before the Board of Directors of your bank. Based on the decision taken by the Board, these recommendations can be adopted and implemented in your bank. Incidentally, certain recommendations of the Group require the approval of the Government or legislative amendments and hence they have been referred to Government for consideration. You may please keep us informed of the action taken by you in this regard. 2. Please acknowledge receipt. Yours faithfully, (C.R. Muralidharan) Encls: As above Annexure List of recommendations of the Consultative Group of Directors on banks and financial institutions which may be considered by banks for adoption and implementation
(i) Responsibilities of the Board of Directors
(ii) Role and responsibility of independent and non-executive directors
(iii) Training facilities for directors
(iv) Submission of routine information to the Board Reviews dealing with various performance areas may be put up to the Management Committee of the Board and only a summary on each of the reviews may be put up to the Board of directors at periodic intervals. This will provide the Board more time to concentrate on more strategic issues such as risk profile, internal control systems, overall performance of the bank. etc. (v) Agenda and minutes of the board meeting
(vi) Committees of the Board (a) Shareholders' Redressal Committee As communicated to banks in our circular DBOD No.111/08.138.001/2001-02 dated June 4, 2002 on SEBI Committee on Corporate Governance , the banks which have issued shares,/debentures to public may form a committee under the chairmanship of a non-executive director to look into redressal of shareholders’ complaints. (b) Risk Management Committee In pursuance of the Risk Management Guidelines issued by the Reserve Bank of India in October 1999, every banking organisation is required to set up Risk Management Committee. The formation and operationalisation of such committee should be speeded up and their role further strengthened. (c) Supervisory Committee The role and responsibilities of the Supervisory Committee as envisaged by the Group viz., monitoring of the exposures (both credit and investment) of the bank, review of the adequacy of the risk management process and upgradation thereof, internal control system, ensuring compliance with the statutory / regulatory framework etc., may be assigned to the Management Committee./ Executive Committee of the Board. (vii) Disclosure and transparency The following disclosures should be made by banks to the Board of Directors at regular intervals as may be prescribed by the Board in this regard.
B. Recommendations applicable only to public sector banks (i) Information flow In order to improve manner in which the proceedings are recorded and followed up in public sector banks, they may initiate measures to provide the following information to the board:
(ii) Company Secretary The Company Secretary has important fiduciary and Company Law responsibilities. The Company Secretary is the nodal point for the Board to get feedback on the status of compliance by the organisation in regard to provisions of the Company Law, listing agreements, SEBI regulations, shareholder grievances, etc. In view of the important role performed by the Company Secretary vis-à-vis the functioning of the Boards of the banks, as also in the context of some of the public sector banks having made public issue it may be necessary to have Company Secretary for these banks also. Banks should therefore consider appointing qualified Company Secretary as the Secretary to the Board and have a Compliance Officer (reporting to the Secretary) for ensuring compliance with various regulatory / accounting requirements.
C. Recommendations applicable only to private sector banks (i) Eligibility criteria and ‘ fit and proper’ norms for nomination of directors.
(ii) Commonality of directors of banks and non banking finance companies (NBFC) In case, a director on the board of an NBFC is to be considered for appointment as director on the board of the bank, the following conditions must be followed:
(iii) Composition of the Board In the context of banking becoming more complex and competitive, the composition of the Board should be commensurate with the business needs of the banks. There is an urgent need for making the Boards of banks more contemporarily professional by inducting technical and specially qualified personnel. Efforts should be aimed at bringing about a blend of 'historical skills' set, i.e. regulation based representation of sectors like agriculture, SSI, cooperation etc. and the 'new skills' set, i.e. need based representation of skills such as, marketing, technology and systems, risk management, strategic planning, treasury operations, credit recovery etc. The above suggestions may be kept in view while electing / co-opting directors to their boards. |