Corporate Governance in the Banking Sector in India

Corporate Governance in Banking Sector

In India, RBI is the central bank of India which regulates all the major issues related to currency, foreign exchange reserves etc. In short, RBI is the bank responsible for securing the monetary stability in India.

The Reserve Bank of India Act, 1934 says, “An Act to constitute a Reserve Bank of India. Whereas it is expedient to constitute a Reserve Bank for India to regulate the issue of Banknotes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.

No one could deny the fact banks plays an important role in the economic stability. In case a bank crashes then it does not crash alone, it takes away the lifelong investment and savings of its entire account holders too.

Corporate Governance

This is not the only reason due to which corporate governance in the banking sector is needed. Corporate Governance is also needed for the bank to keep a check on money laundering, financing immoral and criminal acts and transaction of money to the terrorists.

RBI in India plays a leading role in formulating and implementing corporate governance.

Disclosure of All Facts

It is the most important constituent of corporate governance. If the banks will not be disclosing their transactions to the RBI then they can vanish with the lifelong investments and savings of the people.

The RBI through the requirement of routine reporting of financial transactions of the bank keeps a tab on the activities being undertaken by the banks in India. Any failure to abide by the requirements set out by RBI may lead to heavy fines being imposed along with the cancellation of the license to operate as a bank.

Off-Site Surveillance

RBI routinely performs an annual on-site inspection of the records of the banks. The main focus of the off-site surveillance is to monitor the financial health of banks between two on-site inspections, identifying banks which show financial deterioration and would be a source for supervisory concerns.

Corrective Action

RBI has set important points, based on trigger points set by RBI, the banks have to follow. This will help to maintain a proper mechanism for there performance.

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