Dr. Madhusudan Das Pai, CEO, G.P Parsik Sahakari Bank, spoke on the topic of Governance at the FCBA 2024 conference at Lucknow. Edited excerpts:
This topic of corporate governance and professionalism was the subject of my doctorate. For last 8-10 years, RBI is very much insisting on corporate governance, particularly urban corporate bank and particularly with large size banks, ie more than Rs5000 crore. What is the reason? After Madhavpura incidents, RBI observed that there is a lack of professionalism in the corporate banking sector. So they decided to have at least 2 professional directors on the board of the BOD. Professional director means either from CA or any banking expert so they can guide to the BOD on the policy matters. They observed that even after introduction of these 2 professional directors, the improvement of the professionalism and governance was not up to the mark, even in last 2 years. That’s why they introduced Board of Management.
I found that there is gradual improvement in the governance of banks. Governance cannot be an overnight concept for the BOD, because they are managing the bank for so many years with their traditional approach. RBI sees what the board is discussing in the meetings and whether the decisions are taken in that direction. Generally, in cooperative banks, we always discuss, but we lack in writing the proper proceedings. So, decisions are taken, but all decisions are unanimous.
What RBI questions is that since the cooperative banks are based on the principle of democracy, how can the decisions be unanimous when working on the democratic principles.
Earlier in the UCBs, transparency was a sort of a fear amongst the board of directors. Why to show everything? Why to say everything? Earlier also, nothing was kept in front of RBI inspectors, but those days are gone. Now, inspection is carried out on the raw data. For board of directors, their main transparent document is the annual report. You hold AGM only once in a year. In that case, you gain the confidence of members if your annual report is properly transparent and drafted as required.
Now we have risk-based audit. A bank can appoint outsiders, but the policies of the bank are best known to its officers only. RBI has made a one significant change in appointment of the chief of the auditor. They say, head of the internal audit should be a senior person, having a specialized banking knowledge – because the auditor cannot be a person who doesn’t know the bank’s policy. If he doesn’t know bank policy, he can’t be a good auditor. And if he cannot fail to point out some of the irregularities and observations.
Read more:
Specialized knowledge must for people on the board
