SEAT AT THE TABLE: Board accountability and risk mitigation | Photo credit: FangXiaNuo
Weak boards that fail to ask the right questions, related party transactions that slip through unchecked, or risk committees that exist in name only are just a few examples of governance failures that can have a lasting impact on an institution’s financial soundness.
When governance weakens, trust erodes long before the numbers show stress. This is illustrated by the lack of trust that the financial services ecosystem has experienced over the past two decades. Once confidence in an institution is shaken, the liquidity crisis is exacerbated and manifests as a solvency crisis, forcing regulators to intervene.
Governance designers
The governance architecture in Indian finance is not uniform; it is shaped by the mandates of the supervisors.
The Reserve Bank of India (RBI) focuses on prudential soundness and system stability. Its interventions, from limiting the tenure and pay of bank CEOs to mandating independent compliance functions, aim to prevent the build-up of risk within institutions.
The Securities and Exchange Board of India (SEBI) works to maintain transparency and market integrity. The reforms around independent directors, related party transactions and ESG (environmental, social and governance) information reflect an effort to build investor confidence while making boards more accountable.
The Insurance Regulatory and Development Authority of India (IRDAI) balances consumer protection with solvency. The push for stronger risk committees and policyholder-focused disclosures reflects the need for insurers to be governed not only as financial institutions, but also as custodians of the public trust.
Together they indicate that governance is not optional, but crucial for trust and resilience. Therefore, it should be treated as an important precursor to financial health. This principle is reflected in measures such as
The RBI’s emphasis on Chief Compliance Officers, board accountability and a culture of risk awareness;
The RBI’s directive that compliance heads should report directly to the board underlines the paramount importance of governance, undiluted by operational pressures;
The scale-based regulatory framework that explicitly links governance obligations to systemic relevance in the case of non-banking financial companies (NBFCs) – larger entities bear greater responsibility as governance failures on a large scale can trigger shocks across the financial system;
SEBI’s tightening of related party norms and oversight of disclosures, demonstrating a shift towards preventative governance in the capital markets. Investors, both domestic and global, view these moves as signals of India’s commitment to credibility and reliability as a deep market.
While regulators continue to define and focus on governance, the responsibility for putting the principles into practice lies with the institutions’ boards of directors. The responsibility of the board is not the easiest; it fulfills its supervisory role without dealing with implementation responsibilities. The board must be constantly alert to cultural degradation within the organization and act quickly if it smells a fire.
Policy priorities
Policy should mandate governance as a forward-looking measure of stability. The important components include:
Monitoring board independence, audit quality and risk oversight, in addition to financial ratios, as part of early warning systems;
Convergence of governance reporting across banks, NBFCs and insurers to enable fair comparison and assessment of contagion risks across the financial services ecosystem;
Assessing board responses to shocks such as cyber breaches, ESG gaps, group failures and risk failures;
Treat weak supervision with the same seriousness as weak capital buffers.
Ultimately, governance can only serve as an effective leading indicator if there is a symbiotic relationship between regulators and regulated entities. A collaborative and consultative approach will go a long way in achieving this objective.
(The writer is Partner and Financial Services Risk Advisory Leader, Grant Thornton Bharat)
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Published on November 10, 2025
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