What changed
RBI introduced specific 'fit and proper' criteria for elected directors on boards of SBI associate banks under Section 25(1)(d) of the SBI (Subsidiary Banks) Act, 1959. Banks must now constitute a nomination committee of at least three independent directors to assess candidates based on education, experience, track record, and integrity. The committee must document decisions and obtain annual declarations from directors.
What it means for you
Banks must formalize director vetting through a nomination committee, ensuring elected directors meet integrity and competence standards. Non-adherence to criteria, such as adverse regulatory notice or loan default, disqualifies candidates. This strengthens board governance and aligns with earlier Ganguly group recommendations on director covenants.
What you must do
- Form a nomination committee with at least three independent directors and a chairman from among them.
- Obtain signed declarations from existing and prospective elected directors using the prescribed format.
- Conduct due diligence before the last nomination acceptance date and record committee minutes with voting details.
- Ensure elected directors execute deed of covenants annually by March 31 and submit annual declarations of unchanged information.
- Reassess fit and proper status if significant changes occur in a director's circumstances.
Who it affects
SBI associate banks, Elected directors on boards of SBI associate banks, Nomination committees of these banks
What happens if a director fails to meet the fit and proper criteria?
The nomination committee can reject the candidature or, for existing directors, initiate a fresh due diligence process. Adverse notice from regulators or loan default makes a director unfit.
How often must directors provide declarations?
Elected directors must furnish a simple declaration every year as on March 31, confirming no change in previously provided information. Any significant change triggers a fresh due diligence.
What is the role of the nomination committee?
The committee, comprising at least three independent directors, assesses candidates based on education, experience, integrity, and track record. It decides on acceptance of nominations and documents its decisions in formal minutes.