RBI to bank boards: Replace management if required to ensure governance

Reserve Bank of India (RBI) deputy governor M Rajeshwar Rao has asked boards of banks to sack and replace the management, if required, to ensure governance and risk management.

Speaking at conference of directors of banks organised by the RBI recently, Rao emphasised the importance of bank boards holding management accountable and taking suitable action to ensure effective governance within financial institutions.

Rao said that boards should appraise management performance objectively. “Boards should ensure that they are held accountable for their actions. If management is not meeting expectations, boards should take suitable action, including replacing the management, to improve the bank’s governance and risk management,” said Rao.

Rao highlighted that addressing the erosion of public trust in financial institutions requires more than regulatory measures and supervisory efforts. He stressed that the standards expected of banks in terms of governance are always higher than those of other entities to mitigate the risk of failure arising from governance issues.