What changed
RBI issued specific 'fit and proper' criteria for elected directors on boards of nationalised banks under Section 9(3)(i) of the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970/80. Banks must now set up a nomination committee of at least three independent/non-executive directors to conduct due diligence on candidates. The committee must evaluate educational qualifications, experience, track record, and integrity, and reject candidates with adverse regulatory notices or loan defaults.
What it means for you
Banks must formalize a nomination committee process to screen elected directors, ensuring board quality and governance. This adds compliance burden but reduces risk of unfit directors. Lenders need to update board procedures, collect declarations, and maintain annual reviews to avoid regulatory gaps.
What you must do
- Constitute a nomination committee with at least three independent/non-executive directors and a chairman from among them.
- Obtain signed declarations from existing elected directors and new candidates using the prescribed format.
- Hold committee meetings before nomination deadlines to assess fit and proper status based on criteria.
- Ensure elected directors execute a deed of covenants annually by March 31.
- Complete due diligence for existing directors promptly and update declarations yearly as on 31 March.
Who it affects
Nationalised banks, Elected directors on boards of nationalised banks, Nomination committees of nationalised banks
What happens if an elected director fails to provide the annual declaration?
The director must furnish a simple declaration every year as on 31 March. If not provided, the nomination committee should reassess their fit and proper status, and any significant changes require fresh due diligence.
Can a candidate with a past loan default be elected as a director?
The criteria specify that a candidate coming to adverse notice of any authority or with insolvency or default of any loan from any bank or financial institution would make the candidate unfit and improper to be a director on the Board of a bank.
What is the quorum required for the nomination committee meeting?
The quorum is three members, including the chairman. If a member is absent, the board can nominate another independent director for that meeting.