The regulatory framework in India, in addition to prescribing prudential guidelines and encouraging market discipline, is increasingly focusing on ensuring good governance through 'fit and proper' owners, directors and senior managers of the banks. Transfer of shareholding of five per cent and above requires acknowledgement from the Reserve Bank and such significant shareholders are required to meet rigorous ‘fit and proper' requirements.
Banks have also been asked to ensure that the nominated and elected directors are screened by a nomination committee to satisfy ‘fit and proper' criteria. Directors are also required to sign a covenant indicating their roles and responsibilities. The Reserve Bank has issued detailed guidelines on ownership and governance in private sector banks emphasising diversified ownership.