This document discusses how to make bank boards more effective. It notes that banks are different than other companies due to their role in mobilizing financial savings and maintaining systemic stability. Effective bank boards require the right structure, including independent directors with relevant experience, as well as proper conduct around agenda-setting, information sharing, and oversight of business strategy, risk management, and regulatory compliance. The document also summarizes recommendations from the Nayak Committee on comprehensive reforms to improve both public and private bank governance through changes to composition, conduct, and regulations.
Strategic Resources May 2024 Corporate Presentation
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How to make Bank Boards more Effective
1. CALP: How to make bank boards more effective?
03 February 2015
2. Topics
โขCriticality of effective board in banks โ why banks
are different
โขMaking bank boards effective โ key levers
โขSome reflections on the Nayak Committee
โขBreakout group discussion
3. Key themes for Public Sector reinvigoration
(MoF Presentation โ 07 January)
โขAutonomy with governance
โขEfficiency
โขInnovation and inclusion
โขOwnership, capital, & consolidation
โขUpgradation of HR
4. Bank governance globally, post the financial crisis
โขComprehensive regulatory review of banks and FI
governance
โขCompetence and capabilities in addition to โfit and properโ
โขBoard functioning
- Significantly more time
- Overview of operations
- Direct engagement with operating managers, unmediated by the CEO
- Deeper committee deliberations
5. Indian economy is highly bank centric
Note: Excludes Claims on govt.; total household savings data not available for โ91-โ03, only split ratios available
Source: RBI
6. Why (Indian) banks are different?
โขOnly platform to capitalise economy - over 60% of
financial savings mobilised through banking
โขLeverage & risk
โขConnectedness โ contagion, systemic stability
โขGovt ownership โ capitalisation โ fiscal burden
7. Making boards effective
โขStructure โ Conduct โ Performance
โขStructure:
- Composition โ independent, background and experience, etc
- Tenure
- Roles (Committees, etc)
- Separation of C & MD
โขConduct
- Agenda & Forum (Full board vs committees)
- Information
- Decisions
- Follow up
8. How to improve Board conduct?
โขAgenda: getting the right issues
- 7 critical themes โ business strategy, risk management, financial
(regulatory) reporting, compliance, customer protection, financial
inclusion, and HR
- Policy versus operational
- For decision vs information
- Committees vs full Board
โขInformation: Timely and accurate
- โMarked- to-modelโ MIS
- Relevant to the issue
9. Nayak committee
โขMandate: Comprehensive review of the functioning of bank
boards and other associated issues (ownership, regulations,
compensation, etc)
โขComprehensively covered issues of structure and conduct
โข41 recommendations spanning 6 topic areas; covered both
public and private (new and old) bank boards
- Roughly a third each to be acted on by the government, the RBI, and
the board themselves
- Includes institutional changes such as creation of the BBB and the BIC
- 14 step process to create fully empowered boards in PSU banks
- Legislative changes and draft legislation