1. Executive Summary
The RBI's amendment represents a significant governance rationalisation exercise for Small Finance Banks. It seeks to address the longstanding concern that Boards may spend disproportionate time reviewing routine operational and regulatory matters at the expense of their core responsibilities relating to strategy, risk management, financial soundness, governance and oversight.
The amendment introduces a structured framework under which matters are categorised into three broad groups:
- Policies requiring Board approval, with limited scope for delegation;
- Non-policy matters that must be placed before the Board for approval, review or information; and
- Matters that may be delegated by the Board to appropriate Board or Management Committees.
The framework does not dilute the ultimate responsibility of the Board. Instead, it seeks to distinguish between matters that require direct Board oversight and those that can appropriately be dealt with by specialised committees, subject to suitable reporting and oversight mechanisms.
2. Core Governance Change
A key feature of the amendment is the insertion of paragraphs 33A and 33B, which establish the new architecture for Board agenda management.
The Board is required to determine matters based on the principle that it retains ultimate responsibility for:
- Business strategy;
- Financial soundness;
- Key personnel decisions;
- Internal organisation;
- Governance structures and practices;
- Risk management; and
- Compliance obligations.
At the same time, the Board is expressly permitted to delegate appropriate matters to Board Committees or Management Committees, together with necessary reporting requirements.
This is an important distinction: delegation of decision-making does not amount to abdication of accountability.
The amendment also places greater responsibility on the Chairperson of the Board to determine the agenda and requires the Board to ensure that management provides adequate and timely information. The Board is further expected to periodically review not only the matters placed before it but also the matters delegated to committees.
3. Rationalisation of Board-Approved Policies
Appendix I provides a consolidated framework of policies that are required to be placed before the Board.
The important policy areas include:
- Credit Policy;
- Investment Policy;
- Risk Management Policy;
- Outsourcing Policy;
- Digital Banking Policy;
- IT and Information Security Policy;
- Responsible Business/Lending Conduct Policy;
- Policy relating to Banking Outlets;
- Deposits and Liability Products Policy;
- Auditor Appointment and Remuneration Policy;
- Fit and Proper Policy for Major Shareholders;
- Compensation Policy;
- CSR Policy;
- Compliance Policy;
- Protected Disclosure Policy;
- Disclosure Policy;
- Code of Conduct/Ethics Policy;
- KYC Policy; and
- Interest Rate Policy.
The overall approach is that core prudential, risk, governance, compliance and conduct policies generally remain within the Board's direct ambit. Delegation is permitted only in specifically identified areas.
This is particularly significant because it prevents the rationalisation exercise from becoming a mechanism for excessive delegation of fundamental governance responsibilities.
4. Greater Role for Board Committees
One of the most consequential changes is the explicit recognition of the role of Board Committees in dealing with matters that need not necessarily consume the full Board's time.
For example, certain matters relating to:
- Risk-Based Internal Audit;
- Annual Audit Plan;
- Lending to related parties;
- Annual Banking Outlet Expansion Plan;
- Correspondent banking relationships;
- Outsourcing;
- Investment portfolio;
- Cybersecurity;
- Customer service;
- Liquidity and ALM;
- Green deposits; and
- Certain operational and risk matters
may be delegated to appropriate committees, including the Audit Committee, Risk Management Committee, Customer Service Committee, Asset Liability Management Committee or other committees specifically authorised by the Board.
The amendment therefore promotes a committee-centric governance model, where technically specialised matters are dealt with by the committee best equipped to handle them, while the Board retains overall supervision.
5. Matters That Cannot Be Delegated
The framework also identifies several matters that continue to require direct Board involvement.
These include, among others:
- ICAAP structural design and contents;
- Capital Plan;
- Acquisition of shares or voting rights in specified circumstances;
- Issuance of regulatory capital;
- Reclassification of investment portfolio categories;
- Declaration of dividend;
- Voluntary amalgamation;
- Appointment/reappointment of MD & CEO;
- Remuneration of Whole-Time Directors;
- Appointment of CRO;
- Appointment of CCO.
This demonstrates that RBI continues to regard capital adequacy, ownership structure, senior management appointments and fundamental corporate actions as matters requiring direct Board oversight.
6. Risk Management Implications
From a risk governance perspective, the amendment is particularly important.
The Board's oversight responsibility expressly extends to:
- The risk management system;
- Risk management policy and strategy;
- Exposures to related entities;
- Corporate governance standards;
- Committee composition and functioning; and
- Compliance with governance and review requirements.
Thus, although routine risk matters may be delegated, the risk appetite, risk architecture and overall risk governance framework remain fundamentally Board responsibilities.
The framework also requires the Board to receive sufficient information from management and to determine the nature and frequency of information required. This effectively shifts the focus from merely receiving voluminous Board papers to receiving decision-useful management information.
7. Impact on Board Meetings
The amendment is likely to have a meaningful impact on the structure and conduct of Board meetings.
Boards should move away from an agenda dominated by repetitive statutory and regulatory reporting and towards a more strategic agenda covering:
- Business performance;
- Capital and liquidity;
- Emerging risks;
- Stress scenarios;
- Cyber and operational resilience;
- Regulatory developments;
- Technology risks;
- Customer and conduct risks;
- Governance effectiveness; and
- Long-term strategy.
The Chairperson's role becomes particularly important, as the amendment places primary responsibility for setting the Board agenda with the Chairperson.
8. Key Compliance and Governance Actions for SFBs
In my view, every Small Finance Bank should undertake the following exercise before 1 October 2026:
A. Conduct a Board Agenda Mapping Exercise
Prepare a comprehensive inventory of all matters currently placed before the Board and classify each as:
- Mandatory Board approval;
- Mandatory Board review;
- Mandatory Board information/reporting;
- Delegable to Board Committee; or
- Delegable to Management Committee.
B. Review the Delegation of Authority Matrix
The existing delegation matrix should be compared with Appendix II-B. Appropriate amendments should be made to clearly identify:
- The delegated authority;
- The committee/person to whom authority is delegated;
- Monetary and other thresholds;
- Reporting requirements;
- Frequency of reporting; and
- Escalation triggers.
C. Review Board Committee Charters
The terms of reference of the:
- Audit Committee;
- Risk Management Committee;
- Customer Service Committee;
- ALCO;
- Committee on Lending to Related Parties; and
- Other relevant committees
should be reviewed and aligned with the new delegation framework.
D. Review Board and Committee Calendars
The annual Board calendar should be redesigned to ensure that matters continue to reach the Board at the frequency mandated by RBI, while matters eligible for delegation are appropriately routed to committees.
E. Update Board Policies
The Bank should review its policy architecture to ensure that all policies listed in Appendix I are appropriately consolidated or regrouped.
The RBI expressly permits banks to regroup policies, provided all specified aspects are adequately covered in one or more policies.
F. Strengthen Management Information Systems
The Board must receive adequate information to discharge its responsibilities effectively. Consequently, Board reporting formats should be reviewed to ensure that information is:
- Relevant;
- Concise;
- Timely;
- Risk-focused;
- Exception-oriented; and
- Capable of supporting informed decision-making.
9. Key Governance Risk
The principal risk arising from the amendment is over-delegation.
There is a possibility that, in an attempt to reduce Board workload, matters of strategic importance may be pushed down to committees without adequate Board-level visibility.
The RBI framework itself mitigates this risk by requiring the Board to clearly articulate matters reserved for its approval or information and to periodically review both the matters placed before it and those delegated to committees.
Therefore, SFBs should adopt the principle:
"Delegate execution and detailed review, but retain strategic oversight and accountability."
10. Overall Assessment
The amendment should be viewed as a governance enhancement rather than merely a reduction in Board workload.
Its underlying philosophy is that an effective Board should not function as a clearing house for every regulatory or operational matter. Instead, it should focus its collective expertise on matters that genuinely require Board-level judgement.
The success of the framework, however, will depend heavily on how individual SFBs implement it. Merely transferring matters from the Board agenda to committee agendas will not achieve the intended objective. The real benefit will arise only if the Bank simultaneously strengthens:
- Committee effectiveness;
- Delegation frameworks;
- Management reporting;
- Risk dashboards;
- Escalation mechanisms;
- Board information systems; and
- Periodic review of delegated authorities.
Conclusion
The RBI's Small Finance Banks – Governance Amendment Directions, 2026 mark a substantive shift towards a more principles-based, risk-focused and strategically oriented Board governance model. Effective from 1 October 2026, the amendment provides SFBs with greater flexibility to allocate regulatory and operational responsibilities between the Board and its committees while preserving the Board's ultimate accountability for strategy, financial soundness, risk management, governance and compliance.
For Company Secretaries and governance professionals, the immediate priority should be to undertake a comprehensive Board and Committee Agenda Rationalisation Exercise, followed by a review of Board policies, committee terms of reference, delegation matrices, annual calendars and reporting protocols. This would ensure that the Bank is fully prepared for implementation from 1 October 2026 and, more importantly, that the revised framework results in better governance rather than simply fewer items on the Board agenda.
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