The recent resignation of the Chairman of HDFC Bank citing “differences over values and ethics” has once again brought into sharp focus a deeply under-regulated area in Indian banking: the conduct and accountability of Board members. What made this episode particularly unsettling was not merely the resignation, but a charge without any specificity. There were no disclosed finding and a letter devoid of actionable details. Naturally this triggered unease across investors, customers, and market observers. The incident also raised a fundamental question- Who governs the conduct of those who are meant to govern the institution?
The Reserve Bank of India has long recognised the importance of governance at the Board level. As early as its June 25, 2004 circular on Fit & Proper criteria, the regulator emphasised the importance of appointment of directors with ‘fit and proper’ credentials. Further, RBI guidelines require banks to ensure Directors are “fit and proper” and possess integrity, track record and credentials. Subsequent directions such as:
- RBI Master Direction (2019) on Fit & Proper criteria for elected directors
- Corporate Governance Directions (2015)
- And most recently, Commercial Banks – Governance Directions, 2025
have progressively strengthened expectations around Board composition, Committee structures and Oversight responsibilities. For instance, the 2025 Directions require Boards to:
- Ensure “robust controls” and “strong culture of accountability”
- Oversee risk, compliance, and stakeholder interests
But the core gap remains- RBI has strong entry filters but there’s ongoing oversight mechanism. RBI framework has a structural limitation. It focuses heavily on who gets appointed but far less on how they behave once appointed.
Current RBI expectations largely rely on:
- Self-declarations by directors
- Annual affirmations
- Board-level oversight
However, these are a) process-driven, not behaviour-driven and b) Institution-led, not regulator-enforced at individual level. There is a missing link of: Conduct, Behaviour, and Accountability.
RBI does not issue any conduct rules for directors but depends on the code of conduct issued by regulated entities (RE’s). There is no provision for individual accountability mapping, regulatory scrutiny of behavioural lapses and mandatory disclosure of governance disputes. This leaves a gap and leaves enough room for surprises.
There is no on-going assessment of Fit and Proper unlike European Union. If we compare the RBI framework with United Kingdom (UK), then we will find that the UK regulator follows a more granular approach- in UK the behaviour is regulated and not assumed.
Under the UK’s Senior Managers & Certification Regime (SM&CR), enforced by the Financial Conduct Authority and Prudential Regulation Authority:
1. Conduct Rules are Explicit and Enforceable: “You must act with integrity… with due skill, care and diligence… and be open and cooperative with regulators.” These are binding obligations, not expectations.
2. Individual Accountability is Clearly Defined: “Every senior manager must have a Statement of Responsibilities.”
This ensures:
- No ambiguity
- No diffusion of responsibility
- Direct traceability in case of failure
3. Six-Year Regulatory Reference Requirement: “Firms must undertake appropriate referencing going back 6 years.”
This creates:
- Institutional memory
- Accountability beyond tenure
- Prevention of silent exits
Looking at the above and some recent incidents, there is a need for RBI to revise its approach. The framework needs to move with time and should go beyond just qualifications. Time is right that RBI starts exercising its judgement. The key members of the board like the Chairman, Chair of the Audit committee, Risk Committee, Nomination and Remuneration Committee should be subjected to ongoing assessments.
This matters more than ever. In Indian banking history, across both public and private sector episodes clearly shows failures are rarely operational but overwhelmingly governance failures at the top. Yet conduct at Board level remains largely unstructured, accountability remains diffused and exit events remain opaque.
When a senior Board member exits citing – “Values” and Ethics”, but provides no details, then the regulator cannot remain silent. It exposes the absence of a formal mechanism to examine, record, and disclose governance conflicts.
The Way Forward for RBI
India does not lack regulation-it lacks granularity and enforceability at the individual level. Time has come that RBI introduces Director Conduct Rules, further all senior and key members of the Board must have a Statement of Responsibilities. Clearly mapping the accountability of each Board member is certainly advisable. It would serve the interest of the RBI and the RE’s that a mandatory reference check is institutionalised. Experience in governance roles and Banking should be given higher weightage. The reference checks will also help in building institutional memory. Most importantly RBI must strengthen the Exit Transparency, particularly where resignation cites ethics or governance concerns.
The RBI has progressively strengthened governance frameworks but the next frontier is clear:
Moving from “fit and proper at entry” to “fit and accountable throughout tenure” is the way forward.
The behaviour of the senior management and especially the Board Members decides the stability of an institution and any anxiety emanating from this level can cause tremendous unease among all the stakeholders including the customers. Time for RBI to step in.
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