the material for directors ‘ manageable ’. the reviews dealing with various performance areas could be put up the supervisory committee of board and a summary of each such review could be put up to the main board. the board ’ s focus should be devoted more on strategy issues, risk profile, internal control systems, overall performance, etc. the procedure followed for recording of the minutes of the board meetings in banks and financial institutions should be uniform and formalized. banks and financial institutions may adopt two methods for recording the proceedings viz., a summary of key observations and a more detailed recording of the proceedings. · it would be desirable if the exposures of a bank to stockbrokers and market - makers as a group, as also exposures to other sensitive sectors, viz., real estate etc. are reported to the board regularly. the disclosures in respect of the progress made in putting in place a progressive risk management system, the risk management policy, strategy followed by the bank, exposures to related entities, the asset classification of such lendings / investments etc. conformity with corporate governance standards etc., be made by banks to the board of directors at regular intervals as prescribed. · as regards committees, there could be a supervisory committee of the board in all banks, be the public or private sector, which will work on collective trust and at the same time, without diluting the overall responsibility of the board. their role and responsibilities could include monitoring of the exposures ( credit and investment ) review of the adequacy of risk management process and upgradation thereof, internal control systems and ensuring compliance with the statutory / regulatory framework. the audit committee should, ideally be constituted with independent / non - executive directors and the executive director should only be a permanent invitee. however, in respect of public sector banks, the existing arrangement of including the executive director and nominee directors of government and rbi in the audit committee may continue. the chairman and audit committee need not be confined to the chartered accountant profession but can be a person with knowledge on ‘ finance ’ or ‘ banking ’ so as to provide directions and guidance to the audit committee, since the committee not only looks at accounting issues, but also the overall management of the bank. it is desirable to have a nomination committee for appointing independent / nonexecutive directors of banks. in the context of a number of public sector banks issuing capital to the public, a nomination committee of the board may be formed for nomination of directors, representing shareholders

while proceeding with analysis and possible legislative actions, it may be necessary to consider and adopt changes that could be brought about within the existing legislative framework. to this end, governor jalan in his monetary and credit policy statement of october 2001 constituted a consultative group of directors of banks and financial institutions ( chairman dr. a. s. ganguly ) to review the supervisory role of boards of banks and financial institutions and to obtain feedback on the functioning of the boards vis - a - vis compliance, transparency, disclosures, audit committees etc. and make recommendations for making the role of board of directors more effective. the group made its recommendations very recently after a comprehensive review of the existing framework as well as of current practices and benchmarked its recommendations with international best practices as enunciated by the basel committee on banking supervision, as well as of other committees and advisory bodies, to the extent applicable in the indian environment. the report has been put in public domain for a wider debate and its major recommendations are summarized in box 3 : box 3 report of the consultative group of directors of banks / financial institutions · on appointment of directors, due diligence of the directors of all banks – be they in public or private sector, should be done in regard to their suitability for the post by way of qualifications and technical expertise. involvement of nomination committee of the board in such an exercise should be seriously considered as a formal process. further, the government while nominating directors on the boards of public sector banks should be guided by certain broad “ fit and proper ” norms for the directors. the criteria suggested by the bank for international settlements ( bis ) may be suitably adopted for considering “ fit and proper ” test for bank directors. · in the present context of banking becoming more complex and knowledge - based, there is an urgent need for making the boards of banks more contemporarily professional by inducting technical and specially qualified individual. while continuing regulation based representation of sectors like agriculture, ssi, cooperation, etc., the appointment / nomination of independent / non - executive directors to the board of banks ( both public sector and private sector ) should be from a pool of professional and talented people to be prepared and maintained by rbi. any deviation from this procedure by any bank should be with the prior approval of rbi. · on the functioning, the independent / non - executive directors should raise in the meetings of the board, critical questions relating to business strategy, important aspects of the functioning of the bank