RBI Proposes Governance Reforms To Enhance Bank Board Oversight

(MENAFN- KNN India) New Delhi, Apr 9 (KNN) The Reserve Bank of India (RBI) has issued draft Governance Amendment Directions, 2026, covering commercial banks, small finance banks, payments banks, and local area banks.

The RBI has invited stakeholder and public feedback on these directions, aimed at improving bank board functioning and strengthening oversight of strategy and risk, by May 7, 2026.

Shift to Principle-Based Governance Framework

The central bank said it has undertaken a comprehensive review of existing instructions to help bank boards use their time more effectively. As part of the changes, the earlier framework based on seven broad themes has been replaced with a principle-based approach.

This is intended to enable more focused and qualitative engagement by boards, particularly on strategic decision-making and risk governance.

Key Changes Proposed

Under the draft amendments, bank boards will be required to exercise direct oversight on key areas, including risk management systems, policies and strategies, exposure to related entities such as subsidiaries and investments, and compliance with corporate governance standards, including the functioning of board committees.

Several existing provisions specifying matters to be placed before boards have been rationalised or removed to reduce duplication and improve clarity.

Greater Flexibility for Boards

The new framework allows boards to determine, based on guiding principles, which matters should be reserved for their approval, review, or information.

While the board retains ultimate responsibility for a bank's performance and conduct, it may delegate certain functions to committees or senior management with defined reporting mechanisms.

Boards will also be required to clearly define what constitutes 'material amendments' in policies, with only such changes requiring full board approval.

The proposed changes are aimed at enhancing governance standards across banks, improving board accountability, and ensuring better oversight of risks in an evolving financial environment.

(KNN Bureau)

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