RBI Governor Warns of Volatility in Private Banks Due to Governance Lapses

In a recent statement, the Governor of the Reserve Bank of India (RBI), Shaktikanta Das, raised alarm over governance lapses observed in certain private banks, citing the possibility of increased volatility within the sector. Despite the existence of RBI guidelines pertaining to various governance aspects such as chairperson appointments and board conduct, significant gaps have been identified.

During a discussion with bank directors, Governor Das urged them to remain vigilant against any attempts made by banks to conceal non-performing loans. He stated, “During the course of our supervisory process, certain instances of using innovative ways to conceal the real status of stressed loans have also come to our notice.”

Governor Das drew attention to an RBI circular issued in April 2021, which mandated compliance by October 2021. The circular focused on the appointment of independent chairpersons, as well as the tenures of managing directors (MDs), chief executive officers (CEOs), and whole-time directors. Das emphasised the expectation that MDs and CEOs should operate under the overall supervision and guidance of the board while maintaining independence in the performance of their duties.

Furthermore, Das highlighted instances where PowerPoint presentations were circulated as agenda notes, likening them to guided tours. He urged directors to look beyond these presentations and consider a broader perspective.

Expressing concerns about complacency in the banking sector, Governor Das identified methods employed to conceal defaults. He stressed the importance of avoiding conflicts of interest and outlined critical themes that bank boards should prioritise, including risk management, compliance, and customer protection.