(C.R. Muralidharan)
Chief General Manager

1. The independent / non-executive directors have a prominent role in inducting and sustaining a pro-active governance framework in banks.
2. In order to familiarise the independent /non-executive directors with the environment of the bank, banks may circulate among the new directors a brief note on the profile of the bank, the sub committees of the Board, their role, details on delegation of powers, the profiles of the top executives etc.
3. It would be desirable for the banks to take an undertaking from each independent and non-executive director to the effect that he/she has gone through the guidelines defining the role and responsibilities and enter into covenant to discharge his/her responsibilities to the best of their abilities, individually and collectively. A model form of "deed of covenants with a director" is provided in Annexure 3 to the Consultative Group’s Report.

1. Need-based training programmes / seminars/ workshops may be designed by banks to acquaint their directors with emerging developments/challenges facing the banking sector and participation in such programmes could make the directors more sensitive to their role.
2. The Board should ensure that the directors are exposed to the latest managerial techniques, technological developments in banks, and financial markets, risk management systems etc. so as to discharge their duties to the best of their abilities.
3. While RBI can offer certain training programmes/seminars in this regard at its training establishments, large banks may conduct such programmes in their own training centres.

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.

1. The draft minutes of the meeting should be forwarded to the directors, preferably via the electronic media, within 48 hours of the meeting and ratification obtained from the directors within a definite time frame. The directors may be provided with necessary technology assistance towards this end.
2. The Board should review the status of the action taken on points arising from the earlier meetings till action is completed to the satisfaction of the Board, and any pending item should be continued to be put up as part of the agenda items before the Board.

(vi) Committees of the Board

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.

• progress made in putting in place a progressive risk management system, and risk management policy and strategy followed by the bank.
• exposures to related entities of the bank, viz. details of lending to/investment in subsidiaries, the asset classification of such lending/investment, etc.
• conformity with corporate governance standards viz. in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions etc.

1. The Board of Directors of the banks while nominating/ co-opting directors should be guided by certain broad 'fit and proper’ norms for directors, viz. formal qualification, experience, track record, integrity etc. For assessing integrity and suitability features like criminal records, financial position, civil actions initiated to pursue personal debts, refusal of admission to or expulsion from professional bodies, sanctions applied by regulators or similar bodies, previous questionable business practices etc should be considered. The Board of Directors may, therefore, evolve appropriate systems for ensuring ‘fit and proper’ norms for directors, which may include calling for information by way of self-declaration, verification reports from market, etc.
2. The following criteria, which is in vogue in respect of nomination to the boards of public sector banks, may also be followed for nominating independent/ non-executive directors on private sector banks:

• The candidate should normally be a graduate (which can be relaxed while selecting directors for the categories of farmers, depositors, artisans, etc.)
• He / she should be between 35 and 65 years of age.
• He / she should not be a Member of Parliament / Member of Legislative Assembly/ Member of Legislative Council.

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:

• He/she is not the owner of the NBFC, [i.e., share holdings (single or jointly with relatives, associates, etc. ) should not exceed 50%] ,
• He/she is not related to the promoter of the NBFC,
• He/she is not a full-time employee in the NBFC.
• The concerned NBFC is not a borrower of the bank.

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.