Kamal Ghorui
Something is shifting in Indian banking, and most of the commentary has missed the point.
Over the last eighteen months, boardroom tensions at more than one private sector bank have spilled into public view. A chairman has resigned under contested circumstances. Concerns raised internally by a former CFO about derivatives accounting have surfaced more than a year after they were first flagged. Shareholder activists have pushed back on independent director renewals. The regulator has moved faster, spoken more pointedly, and issued draft guidelines on the role of bank boards.
Indian banking is, finally, having its governance moment. For the first time in a generation, the framework is being stress-tested in real time, with regulators, boards, minority shareholders and the financial press all engaged at once.
The framework India has today, seems largely appropriate.
The Governance Directions, 2025, issued by the RBI under Section 35A of the Banking Regulation Act, give bank boards four clear responsibilities: oversee risk, monitor the integrity of business and controls, ensure competent management, and maximise stakeholder interests. The committee architecture is mandated. The independent director requirement is structurally sound. The RBI’s recent draft guidelines now ask boards to hold the line on strategy, risk, operating model and compliance and resist the slide into over-information that quietly diffuses accountability.
Consider two responses to boardroom tension that have played out recently.
In the first, HDFC Bank saw its chairman exit under contested circumstances. Within days, the board had convened, appointed an interim chairman, informed the regulator and secured an affirmative statement on the bank’s governance. An investigation is underway. Disclosures and stakeholder communication have followed a visible, sequenced path.
Shareholder wealth took a short-term hit, but under stress the institution demonstrated what a governance framework is designed to demonstrate: an independent board, a responsive management, a clear line to the regulator, and a willingness to surface tension rather than absorb it.
At IndusInd Bank, the erstwhile CFO raised concerns about a derivatives accounting system. It took more than a year for the issue to reach the market. Subsequent netting-off on the balance sheet was reported without explanation. The response cited the complexity of the transactions. But the complexity of transactions may be a reflection on the requisite skills at a management and board level. Any action taken without adequate explanation and after a considerable lag displays opaqueness or ignorance, both of which reflect poorly on governance.
The hardest problem in Indian bank governance is the blurred line between independent oversight and executive management. Most independent directors arrive from operating careers and bring the instinct to manage. But strategic oversight requires a restraint that does not come naturally to people who have spent careers making operational calls. When directors step into management’s shoes, oversight collapses into direct action.
Management’s reciprocal job is to make the board’s work possible, to bring credible skills to the table and treat scepticism as an input rather than a threat. The best bank managements internalise this principle. Weaker ones prefer “known” directors to resist any challenge.
Board evaluation is the next frontier. As currently practised, it is largely a box-ticking exercise. Independent peer evaluation, facilitated by governance advisory firms, remains the exception. Skill matrices, training hours and evaluation outcomes should be disclosed. Director compensation, compressed by well-intentioned caps, should be unshackled to attract the talent the role demands.
The banks where independent directors genuinely challenge management, where audit committees are substantively engaged, where boardroom tensions surface early and get resolved in daylight, command a visible premium. The banks that do not, pay for it.
END OF ARTICLE
