M Rajeshwar Rao, Deputy Governor, Reserve Bank of India. File
| Photo Credit: Special Arrangement
India’s banking sector needs to address gaps within the governance frameworks and assurance features in a bid to gear up to meet the long run challenges because the nation strives to turn out to be a developed nation by 2047, Reserve Bank of India (RBI) Deputy Governor M Rajeshwar Rao mentioned.
Addressing a convention of administrators of banks organised by the RBI not too long ago, he emphasised that monetary establishments will want extraordinary quantities of economic sources to assist development to realise the visions for a brighter tomorrow.
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“Raising these resources would not be a constraint for financial intermediaries with robust governance frameworks as they can command a governance premium. It is important in this context to gain and retain the trust of other stakeholders such as depositors and various providers of financial resources,” he mentioned.
“This is best ensured by strong governance, control, and assurance functions in financial institutions,” he added.
Also, he mentioned, “While we collectively aspire for an efficient financial intermediation with positive spillover to the real sectors, these aspirations are set in an increasingly competitive, diverse, and interconnected world. As the saying goes, he said, the time to fix the roof is while the Sun is shining.
“The banking sector in India at this juncture is sound, resilient, and financially wholesome. So, the time is maybe proper to enhance the plumbing by addressing the gaps in governance frameworks, assurance features and strategise for higher instances forward,” he said.
Observing that it is essential for the management to deliver good performance, he said but more importantly this should be achieved by adhering to acceptable customer and market conduct and best corporate governance practices.
“We usually see that the issues of conduct don’t get the precedence or consideration of the Board which they need to be getting. Customer service, buyer conduct, moral worker behaviour, information privateness, cyber safety are essential and necessary points which assume even larger relevance in instances of innovation, change and enterprise disruptions,” he said.
“Good or rather best practices in these areas are the key soft pillars which build the edifice of a successful financial institution, more so in these challenging times,” he said.
Therefore, he said, there is a need to reflect on the role and expectations from the governance architecture viz, the Board and its Committees, the Independent Directors and the assurance functions in banks and other financial institutions on these issues.
Coming to the link between regulation and governance, he said, “The regulators usually decide the regulatory perimeter and guide the regulated entities so that there are no accidents and surprises.”
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While it’s for the regulators to difficulty directions that enjoin upon banks to undertake the perfect practices insofar as governance is anxious, he mentioned, it’s for the Board to set the strategic course, have interaction with administration, and conduct evaluate of key insurance policies and frameworks.
“The Boards should manage alignment of performance with pay as well as enforce accountability to ensure adherence to the best practices while achieving the objectives set for the bank by the Board,” he added.
