RBI overhauls board governance framework: shifts focus to strategy, risk oversight
The move reflects a shift towards principle-based regulation, giving bank boards greater flexibility and reducing compliance burden
In a move aimed at strengthening bank governance while reducing procedural burden, the Reserve Bank of India (RBI) has rationalised the list of matters that must be placed before the boards of banks. The move is expected to give directors greater flexibility to focus on strategy, risk management and long-term oversight instead of routine compliance.
The amendments, issued under Section 35A of the Banking Regulation Act, 1949, will come into effect from October 1, 2026. They revise the RBI’s Master Direction on Corporate Governance by consolidating and pruning several existing requirements relating to board functioning.
The central bank said the review was intended to enable boards to utilise their time more effectively and facilitate “more focused and qualitative engagement” on strategic issues and risk governance.
The revised framework sharpens the board’s oversight responsibilities. Directors will be expected to focus on the bank’s risk management systems, policies and strategy, monitor exposures to related entities such as subsidiaries, and ensure compliance with corporate governance standards, including the functioning of board committees and adherence to governance norms.
The move reflects a shift towards principle-based regulation, seeking to improve board effectiveness by reducing compliance-heavy agendas and enabling directors to devote greater attention to strategic oversight and emerging risks in an increasingly complex banking environment.
“The Chairperson of the Board will have the primary responsibility for setting the agenda of the meeting,” the RBI said.
The board is ultimately responsible for the bank’s business strategy and financial soundness, key personnel decisions, internal organisation and governance structure and practices, as well as risk management and compliance obligations, the RBI said. It may, however, delegate certain matters to the Board Committees/Management Committees, along with reporting requirements as may be necessary, it said.
The RBI said the board should clearly articulate the matters reserved for its approval or to be brought to its notice for information or reporting. The role and responsibilities of the board prescribed under various statutes or regulations, shall be taken into account in determining such matters. “However, the Board should ensure that sufficient time is dedicated to strategy and risk governance,” it said.
According to the RBI, the board must ensure that the management provides it with sufficient information to discharge its role effectively. It should specify the nature and frequency of information required. “The Board may seek external reports, if needed,” it said.
The RBI said the board should exercise oversight on the risk management system, policy and strategy followed by the public sector banks (PSBs) and exposures to related entities of the PSBs such as details of lending and investment in subsidiaries, the asset classification of such lending and investment. It should exercise conformity with corporate governance standards viz. in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions.
Several existing provisions prescribing matters to be placed before the board have been deleted and replaced with a principle-based framework. Instead of scattered requirements across multiple RBI circulars, the amended directions introduce dedicated appendices that specify which policies require board approval, which can be delegated, and what operational matters must be brought before the board for approval, review or information.
The revised governance framework will apply not only to public sector banks but, with suitable modifications, to private sector banks as well.
In a move aimed at strengthening bank governance while reducing procedural burden, the Reserve Bank of India (RBI) has rationalised the list of matters that must be placed before the boards of banks. The move is expected to give directors greater flexibility to focus on strategy, risk management and long-term oversight instead of routine compliance.
The amendments, issued under Section 35A of the Banking Regulation Act, 1949, will come into effect from October 1, 2026. They revise the RBI’s Master Direction on Corporate Governance by consolidating and pruning several existing requirements relating to board functioning.
The central bank said the review was intended to enable boards to utilise their time more effectively and facilitate “more focused and qualitative engagement” on strategic issues and risk governance.
The revised framework sharpens the board’s oversight responsibilities. Directors will be expected to focus on the bank’s risk management systems, policies and strategy, monitor exposures to related entities such as subsidiaries, and ensure compliance with corporate governance standards, including the functioning of board committees and adherence to governance norms.
The move reflects a shift towards principle-based regulation, seeking to improve board effectiveness by reducing compliance-heavy agendas and enabling directors to devote greater attention to strategic oversight and emerging risks in an increasingly complex banking environment.
“The Chairperson of the Board will have the primary responsibility for setting the agenda of the meeting,” the RBI said.
The board is ultimately responsible for the bank’s business strategy and financial soundness, key personnel decisions, internal organisation and governance structure and practices, as well as risk management and compliance obligations, the RBI said. It may, however, delegate certain matters to the Board Committees/Management Committees, along with reporting requirements as may be necessary, it said.
The RBI said the board should clearly articulate the matters reserved for its approval or to be brought to its notice for information or reporting. The role and responsibilities of the board prescribed under various statutes or regulations, shall be taken into account in determining such matters. “However, the Board should ensure that sufficient time is dedicated to strategy and risk governance,” it said.
According to the RBI, the board must ensure that the management provides it with sufficient information to discharge its role effectively. It should specify the nature and frequency of information required. “The Board may seek external reports, if needed,” it said.
The RBI said the board should exercise oversight on the risk management system, policy and strategy followed by the public sector banks (PSBs) and exposures to related entities of the PSBs such as details of lending and investment in subsidiaries, the asset classification of such lending and investment. It should exercise conformity with corporate governance standards viz. in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions.
Several existing provisions prescribing matters to be placed before the board have been deleted and replaced with a principle-based framework. Instead of scattered requirements across multiple RBI circulars, the amended directions introduce dedicated appendices that specify which policies require board approval, which can be delegated, and what operational matters must be brought before the board for approval, review or information.
The revised governance framework will apply not only to public sector banks but, with suitable modifications, to private sector banks as well.
