y v reddy : corporate governance in banks in india luncheon address by dr y v reddy, governor of the reserve bank of india, at the seminar on corporate governance for bank directors organised by the indian institute of management, bangalore ; international institute of finance, washington and the indian banks ’ association, mumbai, 16 december 2005. * * * friends, i am thankful to the organisers for inviting me to give a luncheon address. there are several reasons why i was compelled to accept the responsibility. first, the eminence of the presentors, namely indian institute of management, bangalore, international institute of finance and indian banks ’ association. second, the persuasive skills of mr. sinor who brings to bear the persona of the whole banking community on any subject. third, growing importance being accorded to governance in banks by the reserve bank of india ( rbi ) in recent years. this is a program addressed to bank directors of indian banks and rbi would like to be seen to be supportive of efforts to equip the directors of banks to address the commercial - cum - governance issues in general and fulfil the fiduciary responsibilities implicit in being on the boards of banks, in particular. since many substantive aspects of the subject are being addressed by highly qualified professionals, i will initially make a few general observations on the subject but will devote the rest to an enumeration of the reserve bank ’ s recent initiatives and some thoughts on way forward. general observations as you are aware, corporate governance, as a subject of significance for both public policy and markets, is of recent origin. it is useful to recognise that it is a dynamic concept, in terms of scope, thrust and relevance. for example, the issue is approached very differently today compared to original view of the cadbury committee on the subject. east - asian crisis gave a new dimension to corporate governance in the context of financial stability. in u. s. a., the regulatory regimes, post - corporate scandals, are very different from those of the early 90 ’ s. the oecd set out its corporate governance principles in 1999 but revised them in 2004. basel committee on banking supervision ( under the aegis of the bis ) published guidelines on corporate governance in banks in 1999. as an update, in july 2005, the basel committee has issued a consultative document on enhancing corporate governance for banking organisations, seeking comments by end october 2005. i would advise that this document for now and the final document when

disadvantaged with access to easy credit, banks have been asked to consider introduction of a general purpose credit card facility up to 25, 000 at their rural and semi - urban branches. the objective of the scheme is to provide hassle - free credit to banks ’ customers based on the assessment of cash flow without insistence on security, purpose or end use of the credit. this is in the nature of revolving credit entitling the holder to withdraw up to the limit sanctioned. simplified branch authorization : to address the issue of uneven spread of bank branches, in december 2009, domestic scheduled commercial banks were permitted to freely open branches in tier iii to tier vi centres with a population of less than 50, 000 under general permission, subject to reporting. in the north - eastern states and sikkim, domestic scheduled commercial banks can now open branches in rural, semi - urban and urban centres without the need to take permission from rbi in each case, subject to reporting. opening of branches in unbanked rural centres : to further step up the opening of branches in rural areas so as to improve banking penetration and financial inclusion rapidly, the need for the opening of more bricks and mortar branches, besides the use of bcs, was felt. accordingly, banks have been mandated in the april monetary policy statement to allocate at least 25 % of the total number of branches to be opened during a year to unbanked rural centres. road map for providing banking services in unbanked villages with a population of more than 2, 000 : banks were advised to draw up a road map to provide banking services in every unbanked village having a population of over 2, 000 by march 2012. rbi advised banks that such banking services need not necessarily be extended through a bricks and mortar branch, but could also be provided through any of the various forms of ict - based models. about 73, 000 such unbanked villages were identified and allotted to various banks through state - level bankers ’ committees. financial inclusion plans of banks for three years : rbi advised all public and private sector banks to submit a board - approved, three - year financial inclusion plan ( fip ) starting april 2010. these plans broadly include self - set targets in respect of rural bricks and mortar branches opened ; bcs employed ; coverage of unbanked villages with a population above 2, 000 as also other unbanked villages with population below 2, 000 through branches ; bcs and other modes ; no - frills accounts opened, including through