Regulatory updates

The banking sector in India has undergone various regulatory changes, thereby resulting in growing complexity and uncertainty in relation to these regulatory compliances. In this regard, RBI felt a need to establish an effective senior management team in the banks to navigate the ongoing and emerging regulatory challenges. Consequently, on 25 October 2023, RBI issued a notification to mandate the following:

• Appointment of whole-time directors: RBI has now prescribed the requirement to ensure the presence of at least two Whole-Time Directors (WTDs), including the Managing Director (MD) and Chief Executive Officer (CEO) on the board of banks. The number of WTDs need to be decided by the board of the banks by taking into account factors such as – size of operations, business complexity, etc.
• Changes in the Articles of Association (AoA): The notification states that those banks which do not already have the enabling provisions regarding appointment of WTDs in their AoA, may first seek necessary approvals under Section 35B(1)(a)¹³Provisions relating to appointment of managing directors, etc., to be subject to previous approval of the RBI. of the Banking Regulation Act, 1949, in order to comply with these requirements.
• Submission of proposals for appointment: Such banks which currently do not meet the minimum requirement of two WTDs are advised to submit their proposals for the appointment under Section 35B(1)(b) of the Banking Regulation Act, 1949, within a period of four months from the date of issuance of the notification.

To access the text of the notification, please Click here

In December 2021, the Reserve Bank of India (RBI) had introduced the Prompt Corrective Action (PCA) framework for Non-Banking Financial Companies (NBFCs). The objective of the PCA framework is to enable supervisory intervention at an appropriate time and require the entity under supervision to initiate and implement remedial measures in a timely manner, so as to restore financial health of the NBFC. It also intends to act as a tool for effective market discipline.

RBI, vide a notification dated 10 October 2023 has now extended the PCA framework to government NBFCs* (except those in base layer), w.e.f. 1 October 2024.

To access the text of the notification, please click here

* Based on the audited financials of the NBFC as on 31 March 2024, or thereafter