IndusInd Bank row sparks scrutiny of independent directors in Indian banking industry

The role of independent directors (IDs) on private banks' boards may come under closer scrutiny following the IndusInd Bank blowout. The RBI may intensify its inspections of bank board deliberations and focus on governance. Effective board members need to see beyond presentations and connect the dots without getting lost in siloed topics. This scrutiny is likely to be more intense as the banking industry looks for people skilled to be effective board members.

The Reserve Bank of India (RBI) has intensified its oversight of private banks, particularly focusing on the role of independent directors (IDs) on their boards. This heightened scrutiny follows the recent high-profile issues at IndusInd Bank, where governance concerns were a significant factor. The RBI's new focus underscores the importance of effective board members who can navigate complex financial ecosystems and ensure robust governance.

The RBI has announced stricter audits, Know Your Customer (KYC) enforcement, and real-time checks to curb fraud and ensure compliance among newly licensed payment aggregators [3]. This approach is likely to be extended to private banks, with a focus on board deliberations and governance practices.

Effective board members need to see beyond presentations and connect the dots without getting lost in siloed topics. This scrutiny is likely to be more intense as the banking industry looks for people skilled to be effective board members. The appointment of independent directors with relevant expertise is crucial for maintaining transparency and adherence to regulatory norms.

At BNY Mellon, CEO Robin Vince has been elected Chairman of the Board, effective September 1, 2025, while Joe Echevarria will serve as lead independent director [1][2]. This move reflects a strategic shift towards more robust governance and risk management. BNY Mellon, a global financial services company with $53.1 trillion in assets under custody/administration and $2.0 trillion in assets under management, serves over 90% of Fortune 100 companies and nearly all top 100 global banks [2].

The appointment of independent directors with relevant expertise is crucial for maintaining transparency and adherence to regulatory norms. The RBI is pushing these firms to have strict board-approved policies followed by management teams. Recently, BNY Mellon appointed Zarin Daruwala to its board as an independent director [3].

As the Indian digital payments ecosystem grows, the RBI is trying to ensure that these firms closely follow the best practices of the financial services industry. Previously, players such as Razorpay and Cashfree faced regulatory ire when their customer onboarding was completely brought to a stop. Paytm needed to get government clearance regarding their international investments. PayU needed to get its Indian corporate entity to keep the RBI satisfied. The Naspers-backed company managed to get the final PA licence only in May 2025 [4].

In conclusion, the increased scrutiny by the RBI on private banks' boards underscores the importance of effective independent directors. These directors play a crucial role in ensuring robust governance and adherence to regulatory norms. The appointment of independent directors with relevant expertise is essential for maintaining transparency and compliance in the banking industry.

References:
[1] https://www.nasdaq.com/articles/bny-mellon-elevates-ceo-robin-vince-chairman-joe-echevarria-named-lead-independent
[2] https://www.stocktitan.net/news/BK/robin-vince-elected-chairman-of-bny-s-board-of-447sybgkezip.html
[3] https://m.economictimes.com/tech/technology/rbi-keeping-a-close-watch-on-newly-licensed-payment-firms/articleshow/121784649.cms
[4] https://www.taxtmi.com/news?id=38709