Governance Directions of Banks set to be amended effective September 1, 2026

– Vinita Nair and Saloni Khant |  finserv@vinodkothari.com

RBI continues its drive of regulatory reforms for the banking sector, with the recent one being the amendment proposed in the governance directions applicable to commercial banks i.e. Draft Reserve Bank of India (Commercial Banks – Governance) Amendment Directions, 2026 (Draft Directions) relating to policy and non-policy matters placed before the Board for approval, review, information etc. proposed to be made applicable from September 1, 2026. As indicated in RBI’s Statement on Developmental and Regulatory Policies, RBI has undertaken comprehensive review and rationalization of all earlier instructions in an endeavor to enable Boards to utilize its time effectively, and to facilitate a more focused and qualitative engagement on strategy and risk governance.

While, the Draft Directions provide a compilation of matters to be placed before the Board and those that can be delegated to a specific committee or any committee of board/ management, it also provides the principles to be considered by the board while delegating the matters thereby ensuring the adequate oversight of the board  on delegated matters. The amendment would primarily affect the manner in which information is placed before the board of banks, manner and extent of delegation of their powers to committees of board and/or management and reporting requirements for such matters.

The Draft Directions are applicable to both public sector banks and private sector banks.

In this piece, the authors analyse the proposed amendment, impact and indicate the likely actionables for Banks if the amendment is notified as is.

The Role of the Board

The Board of a Bank is expected to majorly focus on overseeing the risk profile of the Bank, monitoring the integrity of its business and control mechanisms, ensuring the expert management, and maximising the interests of its stakeholders. The Board always had the power to delegate certain items to management and board committees, in some cases by way of express provisions in RBI directions, guidelines. But at the same time, it must set and enforce clear lines of responsibility and accountability for itself as well as the senior management.

The Draft Directions draw a clear line between the matters to be dealt by the Board and the matters which can be delegated to committees with only material matters being placed before the Board. Further, a principle based approach is provided for the manner in which information is placed before the Board.

Principle Based Approach for matters to be placed before the Board

The objective of these principles is for the Board to consciously examine the areas where it devotes its valuable time and expertise. The principles require the Board to document express guidelines on the manner in which information is being placed before it.

The board is required to clearly articulate the matters reserved for its approval or to be brought to its notice for information or reporting, based on applicable laws and define the nature, level of detail and frequency of information required from the management. To optimize the time of the Board for real value addition, the chairperson of the Board shall have the primary responsibility of setting the agenda of the meeting.

The matters being placed before it or the Board committees, sub-committees or senior management must be reviewed periodically. This would enable the Board to examine and revoke delegation or further delegate responsibilities wherever required. The review must be detailed enough to include the timelines for circulation of agenda items, adequacy of information captured in the agenda, time allotted for important matters, etc.

The Powers of Delegation

The RBI (Commercial Banks – Governance) Directions, 2025 (existing Directions) provide for delegation of specific items viz. reviews dealing with various performance areas, monitoring of the exposures (both credit and investment) of the bank, review of the adequacy of the risk management process and upgradation thereof, internal control system, ensuring compliance with the statutory / regulatory framework, etc. to a Committee of Board. For ease of reference, the Draft Directions compile as well as draw a clear line between the matters to be dealt by the Board and the matters which can be delegated to committees with only material matters being placed before the Board.

This distinction would enable the Board to focus on its key areas of responsibility – risk and strategy governance and strengthens its powers of oversight over the risk management system, exposures to related entities and conformity with corporate governance standards^[1].

Policy Matters

A list of policies which must be placed before the Board for its approval and which may be delegated for review are prescribed in Appendix-I of the Draft Directions. The Board is responsible for approving the policies at the time of framing and only periodical review is to be delegated to the committees. In case of any ‘material amendments’ (to be defined by the Board), the Board’s approval must be sought. Thus, the Board does not lose complete oversight.

Along with a major consolidating exercise, the Draft Directions also indicate policies where delegation is expressly allowed, even where the underlying directions/ guidelines did not expressly provide for the same. Accordingly, the amendments are enabling in nature in certain cases, as illustrated below:

Provisions	Contents	Delegation to
Para 7(3) and 7(4) of RBI (Commercial Banks – Undertaking of Financial Services) Directions, 2025	Where the bank intends to function as a Professional Clearing Member in commodity derivatives, policy for-Specification of risk control measures and prudential norms for exposure limits for each trading member;Governing the bank’s exposure to trading members, ensuring consistency with the overall risk appetite and regulatory requirements.	Risk Management Committee
Para 7(2) and 7(3) of the RBI (Commercial Banks – Miscellaneous) Directions, 2025	Policy on- Courses / certifications required for specialised areas of operationsList of sensitive positions to be covered under mandatory leave requirements	Any Committee to which powers have been delegated by the Board.

Matters other than policy

Matters other than policies which must be placed before the Board for its approval, review or information are given in Appendix-II of Draft Directions. While several matters must be mandatorily taken up by the Board, the Board shall have the discretion to delegate certain matters even where the underlying directions/ guidelines did not expressly provide for the same. Accordingly, the amendments are enabling in nature in certain cases – for e.g. matters relating to risk assessment methodology for RBIA, Annual Audit Plan, analysis of incidents of operational risk failures & their impact to audit committee, matters relating to investment portfolio to risk management committee.

The Draft Directions also provide for discontinuation of about 6 matters at the discretion of the Board. In certain cases, such as ATM transactions including failed transactions and penalties paid, certain details are to be placed before the Board. The details must be forwarded to RBI along with the Board’s observations. The Draft Directions proposes that such review may be discontinued at the discretion of the Board. Accordingly, amendments would be required in the underlying laws as well.  Similarly in case of matters relating to loans to stockbrokers and market makers where the provisions mandate half-yearly review of the aggregate portfolio, its quality and performance by the Board, the board will have to exercise its discretion depending on the extent of exposure.

Proposed Omissions

Certain provisions of the existing Directions proposed to be omitted are as follows:

Para	Provision deals with	VKC Remarks
14	The Board should focus on the 7 themes of: Business Strategy, Risk, Financial Reports and their integrity, Compliance, Customer Protection, Financial Inclusion, Human Resources	Instead of specifying the themes, the proposed amendment indicates that the ultimate responsibility for the bank’s performance, conduct and control rests with the Board and that it needs to ensure that sufficient time is dedicated to strategy and risk governance.
16	Review of action taken on points arising from earlier meetings till the satisfaction of the board	Broader discretion provided to Banks to decide internal processes and articulate matters requiring its approval or to be brought for reporting or noting of information.
17	Placing regulatory communication from RBI and the government along with supplementary information before the Board
18	Delegation expressly permitted for: Reviews dealing with various performance areas and only a summary on each of the reviews may be put up to the Board at periodic intervals; Monitoring of the exposures (both credit and investment) of the bank; Review of the adequacy of the risk management process and upgradation thereof; Internal control system; Ensuring compliance with the statutory / regulatory framework, etc.	A prescriptive list of permitted delegation has been specified by RBI, refer discussion below.
19	Procedural technicalities relating to placing a summary of key observations by directors at the next board meeting and confirmation by directors for their observations, dissents etc.	Broader discretion provided to Banks to decide internal processes.

Conclusion

The Draft Directions propose to optimise the time of the Board of Banks to focus on strategic and governance matters instead of operational matters. While this measure aims to boost the productivity of Banks and bring ease of doing business in the short term, once notified, several actionables would arise for Banks. Banks must examine their current decision making structure, at the level of the Board and delegation to committees, to understand how they would align it with the proposed amendments.

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^[1] Para 15 of the existing directions retained as para 11A of the Draft Directions.

Refer to our other resources:

1. Representation for issues related to RBI (Commercial Banks – Credit Risk Management)(Amendment) Directions, 2026
2. RBI Directions on Lending to Related Parties: Frequently Asked Questions
3. Navigation Roadmap through New Consolidated RBI Directions – Presentation