RBI Asks Big Commercial Banks To Rectify 'Excessive Dominance' Of 1-2 Directors In Board

The Reserve Bank of India (RBI) has noticed excessive dominance of one or two individual directors on boards of big commercial banks. Hence, the central bank has directed these lenders to rectify this issue. RBI governor Shaktikanti Das on September 25th stated that all directors need to be given a chance to speak on a matter.

Das addressed the directors of Urban Cooperative Banks (UCBs) at a meeting organised by RBI on Monday. The governor said that board discussions should be free, fair and democratic.

He said, "There should not be an over-dominance or excessive dominance by one or two members of the board, or the chairman or the vice-chairman. We have seen this even in big commercial banks, wherever we have seen this, we have told the bank that this is not the way," as per the PTI report.

As per Das, all directors need to be given a chance to speak and a particular director's say should not be the final one on a matter.

RBI governor was making this point while illustrating the importance of a well-functioning board. However, he did not elaborate further on the matter.

One of the recent examples of a somewhat similar situation would be of Dhanlaxmi Bank whose Independent Director Sridhar Kalyanasundaram resigned with effect from September 16, 2023, citing the belligerent attitude of the MD & CEO.

In his resignation letter, Kalyanasundaram said, "There are many instances where despite the value of the inputs given, my inputs have been deliberately negated/avoided/overruled by the other members of the Board, just to
support the belligerent attitude of the MD & CEO - who is on public record (in the vernacular press) that he cares little for shareholders and the directors. I am not the only or even the first director to face his wrath for not towing his line, as many had left rendering this Board legally inconsistent with required composition."

However, neither Dhanlaxmi Bank confirmed or denied this statement.

Banking stocks will be in focus on Tuesday following Das's statements. At present, there are approximately 34 nationalized banks, of which, 12 banks are public sector undertakings and 22 are private sector banks.