, but i thought it would be more effective if we engage with all the directors together. it is the joint responsibility of the chairman of the board and the directors, both whole time as well as non - executive or part time directors, to ensure robust governance in banks. ii. ensuring requisite qualification and expertise in the board 7. the banking regulation act prescribes certain qualifications for appointment as directors in the board of banks. additionally, the reserve bank has issued guidelines on the ‘ fit and proper ’ criteria for the directors. the objective is that board members should have requisite expertise and demonstrate competence and integrity. for this, it is of utmost importance that the directors keep themselves updated with material changes in the bank ’ s internal environment as well as the external factors that have a bearing on the bank. a balanced combination of skills, diversity and expertise commensurate with the size, complexity and risk profile of a bank is what will drive it towards sustainable resilience. these skills should be enhanced by ongoing orientation programmes for the directors. directors must exercise care, prudence and diligence in the discharge of their functions. duty of loyalty implies an undivided and unselfish loyalty to the bank and demands that there shall be no conflict between duty and self - interest6. iii. objective and independent board 8. individual directors should not have any conflict of interest which may hamper their objectivity and independence. it is the responsibility of the board to ensure that policies are in place to identify potential conflicts of interest and deal with them. in this respect, it is necessary that ‘ independent ’ directors are truly independent ; that is, independent not only of the management but also of controlling shareholders while discharging their duties. they have to always remember that their loyalty is to the bank and no one else. directors should keep watch on actual or potential related party transactions. they are expected to ask pertinent questions and obtain the required information from the management before taking decisions. i am not advocating any the corporate governance of banks, jonathan r. macey and maureen o ’ hara, frbny economic policy review / april 2003 confrontation, but only stressing the need for the required level of alertness among all directors. iv. role of chairperson, board committees and managing director / chief executive officer 9. the role of chairperson is akin to the captain of a ship. for the chairperson to be able to navigate the board discussions and functions in the right direction, he / she should

the banks, as suboptimal alm can lead to serious liquidity risks and destabilising effects on the bank itself. the recent developments in the banking sector in the usa bear ample testimony to this. these developments in the usa have also demonstrated that aggressive growth strategies with disproportionate or excessive focus on the bottom lines and / or market capitalisation often leads to build up of vulnerabilities. banks should exercise caution and prudence in their growth strategies, pricing of products and portfolio composition. over - aggressive growth, under - pricing or over - pricing of products both on the credit and deposit sides, concentration or lack of adequate diversification in deposit / credit profile can expose the banks to higher risks and vulnerabilities. from time to time, the reserve bank has engaged with certain banks on the need to make suitable adjustments in their business strategies where it was observed that over - aggressive growth in certain business segments ( be it in credit / deposits ) were creating avoidable vulnerabilities. problems or risks can come from one corner of the balance sheet which might appear insignificant in the beginning. let me emphatically state that the reserve bank does not interfere in commercial decision making of the banks, but only gives them a nudge to address potential risks and vulnerabilities. it is expected of banks that they put in place robust risk management policies and practices to address the risks associated with their business model / strategy. 19. another area of focus for the board should be the adoption of fair practices and customer protection, including in the context of growing digital lending. quick and effective redress of customers grievances reflect the efficacy of a bank ’ s overall functioning. 20. here, i would like to mention that we have also issued guidelines regarding outsourcing of functions to third - party agencies. the arrangements with these third - party agencies should be very clear, specific and well - defined. in outsourcing of critical functions, including technology services, if an incident occurs, the banks cannot shift the blame to the third parties because the primary responsibility of ensuring operational resilience is on the banks and not on the third parties. therefore, it is for the banks to have suitable arrangements and agreements in place with the service providers to ensure that they function according to the policies and expectations of the individual banks. ix. integrity and transparency of financial statements 21. one of the critical areas where the role of directors is very significant is in ensuring the integrity