Individual directors shouldn’t have conflict of interest: RBI Governor

MUMBAI: Reserve Bank of India Governor Shaktikanta Das on Monday said individual directors should not have any conflict of interest which may hamper their objectivity and independence.

While conveying RBI’s expectations from the boards of directors of banks and explaining the multi-dimensional responsibility of individual directors, the Governor said, “It is the responsibility of the Board to ensure that policies are in place to identify potential conflicts of interest and deal with them.”

He was addressing the conference of directors of banks organised by the central bank for the private lenders in Mumbai. In this respect, Shaktikanta Das said it is necessary that ‘independent’ directors are truly independent; that is, independent not only of the management but also of controlling shareholders while discharging their duties.

Das said they have to always remember that their loyalty is to the bank and no one else.

“Directors should keep watch on actual or potential related party transactions. They are expected to ask pertinent questions and obtain the required information from the management before taking decisions,” the RBI Governor said, adding, “I am not advocating any confrontation, but only stressing the need for the required level of alertness among all directors.”

In the matter of the role of chairperson, board committees and managing director or chief executive officer, Das said, “The role of chairperson is akin to the captain of a ship. For the chairperson to be able to navigate the board discussions and functions in the right direction, he/she should possess the requisite experience, competencies and personal qualities.”

He said chairpersons should encourage open and honest discussions.

“Fostering an environment where dissenting views can be freely expressed and discussed is what will ensure objectivity an absolute necessity for longterm sustainable performance of a bank,” he added.