Board of Directors of Bank: If the management of the bank is successful, the people concerned with the interest of the bank such as shareholders, depositors, borrowers as well as government and bank regulatory authorities are satisfied.
A competent and competent board of directors is required for successful management. Due to the large number of scattered shareholders and their remote location, the Board of Directors as their representative looks at the efficient functioning of the bank and solves the problems. Such Board of Directors is elected on behalf of the shareholders of the Bank through annual meetings at regular intervals.
Board of Directors of Bank | Bank Management
All the representatives who are elected to manage the bank are collectively called the Board of Directors. The overall power and authority to manage the bank is vested in them. They collectively exercise power and authority over banks. In short, the Board of Directors is the highest authority of bank management. The shareholders meet in their general special or extra meeting only to fix or approve the principles and plans of the bank.
If the bank is new and small in size, the bank managers do all the work properly. But if the size of the bank is large, direct involvement of the directors is not possible in many cases. In such cases, a Chief Executive under the Board of Directors is sometimes called Executive President Managing Director to carry out the work of the bank properly. He properly implements the policies and procedures set by the Board of Directors. As it is not possible for him to do all the work properly, he delegates some of his power and authority to the heads of various departments of the bank. In this way, the functions of the bank are performed smoothly.
The organizational structure of a middle class commercial bank is illustrated on the next page. Depending on the size of the bank, it may change and expand.
“The soul of business is activity”. -Chester Field
Composition of Bank Board of Directors:
For the proper management of the bank, it is essential to form an efficient board of directors. Directors can be appointed in various ways. Below are the various methods.
1. Recruitment by Promoter
2. Appointment by Shareholder
3. Appointment by the Board of Directors
4. Recruitment by third parties
5. Appointed by Govt
There is no hard-and-fast rule on how many board members a bank will have. The size of the bank, size and the plan or foresight of the initial promoters dictate the size of the board of directors. There may be two types of managers in some banks. Namely full time and part time. Part-time directors participate in agenda-based discussions at pre-scheduled times as needed. On the other hand, the full-time directors, though not salaried employees, perform special duties as required by the bank and receive honorarium, meeting fees, etc.
In some countries a director cannot be a director of more than a certain number of financial institutions. Moreover, the government’s decision to appoint directors of nationalized banks or banks in which the state has shares is strong. Sometimes experts from inside or outside the bank are also accepted as directors. At the end of a country’s central bank, commercial banks have a higher and lower number of directors. Note that in America the minimum number of such episodes is five and the maximum is twenty five.
Qualification and Election of Directors:
Usually the first directors of the bank are more or less self-elected ie their names are mentioned as directors in the memorandum and articles of association. If no one is named as a director in the Articles of Incorporation, then the person who signed the memorandum is deemed to be the first director. They hold office till the first Annual General Meeting.
Subsequently, the shareholders meet in the annual general meeting of the bank and appoint the directors. Since directorship is to be taken by written consent, only persons qualified to execute the contract can become directors of the bank. Any healthy, solvent person can become a bank director by buying qualifying shares. If the qualifying shares are not taken at the time of election, they must be taken within the specified period of election or such director shall be deposed.
Oath of Bank Directors:
Since banks accept deposits from the general public, the government of a country takes various steps to create an environment in which deposits are safe. One such step is that the directors of the nationally based banks take an oath to perform the duties of the bank entrusted to them with utmost integrity, efficiency and trust.
Such oath taking by directors is not governed by state law but is a provision governed by the constitution of the bankers association formed by the banks. With the help of the bank board of directors, the American Comptroller of Currency (American Comptroller of Currency) publishes the booklet titled “Responsibilities and Duties of National Bank Directors”.
The following is the language in which bank directors are required to take the oath of office at the time of taking office by the American Bankers Association
“I the undersigned, Director of the [bank] located at [address] being a citizen of the United States, and a resident of the state of [insert], so solemnly [affirm] that I will, go for as the duty developes on me, diligently and honestly administer the affairs of said Association, that I will not knowingly violate, or willingly permit to be violated any of the status of the United States under which this association has been organized and that I am the owner,
in good faith and in my own right of the number of shares of stock of the aggregate per value required by said status, subscribed by me as standing in my name on the books of the said associations; and that the same is not hypothecated or in any way pledged as security for any loan or debt..
Powers of the Directors:
The powers of the directors depend on the size and scope of the bank. That is, if the bank is small, then the directors will look into all the loan investments and other details of the bank and deal with it properly. If the scope of the bank is very large, then the directors will take the final decision and suggest the performance accordingly. At the same time, transfer the power to other committees and officers of the bank so that the persons having the power can perform the duties assigned to them with the highest judgment.
But directors cannot delegate bank supervisory responsibility. Provided that the duties of the Directors under the Parmail Regulations Charter or the Bank Act are not delegable. The regulations generally define the limits of powers of bank directors and hence it is considered as a valid power for bank directors.
1. Summoning money from share holders for shares.
2. Investing bank money.
3. Formulation of general policies related to bank management.
4. Appointment of one or more directors for the unexpired term of a director in case of premature death or resignation or removal.
5. Appointing the chief executive.
6. Appointing the Chairman of the Board of Directors.
7. Inspection of Accounts.
The directors may accept from the bank the expenses incurred by them for the bank or due to them as specified in the rules. Where not specified in the by-laws, such or any other expenses payable by the directors may be incurred by the directors subject to the approval of the annual shareholders’ meeting.
In addition, the senior director has the right to receive from the bank an equivalent sum of money in advance of the undertaking to give final vouchers for litigation expenses incurred while performing his duties as a bank director. But in case of gross negligence, willful misconduct in the performance of duties, the directors are personally affected by criminal action, the said rule shall not apply.
Personal Attributes of Successful Bank Directors:
Banks do business on the basis of trust by creating a link between depositors and users of funds. Directors of Banks The directors and the bank are often inseparable reputations. Directors with personal reputation enhance the reputation of the banks they manage. On the other hand, it is not unusual for an individual to become a director of a reputable bank. Since the bank is almost a public service institution, the directors are required to have integrity, efficiency and trustworthiness and above all high moral standards.
Directors with character are invaluable assets of the bank. Some of the main personal qualities required of an ideal bank manager have been indicated:
(a) A successful manager must be forward thinking and progressive. In a word, progressive managers will keep news ahead of time and make appropriate future preparations accordingly.
(b) A successful manager should be a well-known and respected person in the society.
(c) Successful managers are intimately aware of the likes and dislikes, needs or tastes of the society and its constituents.
(d) A successful bank manager should have the ability to expand the service scope of the bank by innovating new bank services.
(e) Bank managers should be proactive in making positive changes in currency, tax policy as well as changing or expanding their own bank’s working methods by anticipating the reaction of customers.
(f) A successful bank manager must have adequate knowledge of political, economic and social changes at the domestic and international level apart from the scope of bank operations.
Apart from the above main qualities, the bank manager must possess the following additional qualities to be successful.
(1) Sense of discipline
(3) Patience and tolerance
(5) Ability to adapt to changing conditions or environment
(7) Awareness of responsibilities and duties
(8) Ability to quickly control the situation
(9) Mental balance
(10) Impartial fair judgment attitude and personality
(11) Strong attitude towards performing work according to laws and regulations
(12) Ability to lead the bank’s workforce and
(13) Ability to maintain good relations with employees
Responsibilities of the Bank Directors:
The ultimate responsibility for the success or failure of a bank rests with the board of directors. Directors are appointed or elected to ensure fair service or dues of shareholders, depositors and other interested parties. The directors take many decisions from time to time in the interest of the bank, which is one of the ethical responsibilities of bank directors to keep confidential before implementing the activities.
Directors are often busy with their other business or social activities apart from the bank, yet there is no opportunity to take their appointment as directors lightly. All the directors should be called and actively participate in the meetings of the bank even if they are busy.
Social status, self-satisfaction, allowance or honorarium as a director is a reason for satisfaction for the directors, but it is not possible for the directors to avoid the responsibility if the information clients of the bank are damaged due to the neglect of the assigned responsibility. A small number of directors at home and abroad have been prosecuted in criminal cases for negligence or negligence, intentionally or unintentionally, for causing organized damage to the bank and other stakeholders of the bank.
Performance of one’s duty should be independent of public opinion.
– Mahatma Gandhi.
The following are some of the types of rights and dues that directors generally have to look after:
2. Share holders,
3. central bank,
4. Tax authorities.
6. the society
An indication of the responsibilities of the directors to the persons concerned in the interest of the said groups is provided below
The lion’s share of bank funds are provided by depositors. If depositors are dissatisfied, they may move their deposits to other banks. Therefore, it is the exclusive responsibility of the directors to protect the interests of the depositors and to extend the services they deserve in the best way.
Some of the ways in which such good service can be extended are indicated below:
- Ensuring security of deposited money.
- Checks are only issued to ensure availability for withdrawal.
- Providing good service at the counter.
- Recruitment of skilled service oriented officers, employees.
Directors are the representatives of shareholders. They are elected on the basis of their commitment to protect the interests of the shareholders in the Annual General Meeting. Management is expected to focus on the following matters on behalf of shareholders.
- To ensure that bank shareholders get fair dividends like other business owners.
- Unveiling innovative new horizons that enhance the bank’s reputation.
- Providing successful leadership on behalf of shareholders with the Bank’s associated groups within the Bank.
- To implement schemes whereby the bank’s workforce can sell services profitably.
- Planning based on future oriented profitable thinking.
3. Central Bank:
The central bank is the mentor and supervisor of a country’s banks. The government of a country through the central bank controls the system especially the commercial banks in the larger public interest. Following are some of the expectations of central banks from bank managers:
- Conducting banking activities in compliance with the country’s constitution above all the rules and regulations of banking business in the country.
- Prepare and submit the statements payable at the end of the specified period of the central bank such as weekly statements, monthly statements, quarterly statements and half yearly statements.
- Central Bank’s inspection team examines the operations of the bank and implements the recommended steps to rectify the errors identified by them faithfully and diligently.
- Disciplinary action for neglect of advice is accepted despite repeated reminders.
4. Tax Authority:
It is the exclusive responsibility of the bank to faithfully assist the tax authorities in implementing the prevailing revenue policies of the country. According to fiscal policy, it is the moral duty of the directors to voluntarily cooperate with the tax in collecting the tax or duty payable by the bank on the income or profit. At times banks may assist revenue authorities in collecting source tax from customers. From time to time taxpayer clients are required to file tax returns with tax authorities. Tax authorities are required to cooperate by providing confidential information in verifying the authenticity of the information.
Banks act as a powerful tool for the economic activities of a country. The directors of the banks can actively help the government by increasing or decreasing the supply of credit in the implementation of long-term or comprehensive plans of the country. For example, it can be said that bank managers should actively cooperate with the government by balancing (changing) the lending activities of the bank in view of the importance of the government in export-oriented activities, income-raising activities for the financial development of backward groups, food crop production or export-oriented rice production.
Bank is recognized as a person and a member of society created by a law. It is the sole responsibility of bank managers to participate in social activities as per the needs of the society without harming the bank business. In the western world including America, the awareness of business ethics and social responsibilities (Business Ethics Social Responsibilities) has been developed in view of the current consumer movement. Since the bank is a business organization, the directors of the bank should always be careful not to abandon the principles and engage in irresponsible activities towards the society in carrying out the banking activities.
It is often not right to assist him in any economic activity through loans. It is undesirable and undesirable and abandoned in terms of business ethics and social responsibilities to help economic activities against the laws and constitution of the country, smugglers, drug dealers, businessmen engaged in anti-social activities or the enemies of the country in legitimate economic activities.
Directors of the bank will provide timely and correct leadership in the bank activities in a profitable manner without disregarding the legitimate expectations of the interested parties with integrity. Otherwise they will be considered as dereliction of duty.
Functions of Bank Directors:
In order to carry out their joint work, the full-time board of directors performs some additional functions of the bank in return for legitimate additional benefits. Some of the notable tasks that bank managers usually perform both full-time and part-time are as follows:
1. Determination of the Bank’s Goals & Objectives.
2. Formulation Bank’s Policies.
3. Selection of Bank Management
4. Determining Authority Responsibilities Executives
5. Creating Required Committees
6. Supervision Bank’s Relatively Bigger Loans.
7. Supervision Major Investment.
8. Counselling Personnel
9. Counselling the Prime Customer when Sought
10. Business Development
11. Review Bank Operations
12. Evaluating Performance Bank Executive and officers in the light their Descriptions and Expected Standard of Bank.
13, Recommendation of Dividends to be distributed to shareholders.
14. To Sign Contract on Behalf of the Bank
15. Maintaining Books of Records and Accounts
16. Issuing Shares and Distributing the Same Among the Share Holders.
Liabilities of the Bank Directors:
A bank is a company. A shareholder’s liability under the Bank and Companies Act is limited to the value of the shares.
Even though the bank director is a shareholder, he has to bear the responsibilities beyond the value of his shares.
As members of the board of directors, the directors of the bank enjoy certain benefits including honorarium. In return for these benefits, every bank manager has to perform certain expected duties. Lack of diligence in carrying out the duties or repeatedly taking wrong actions prevents the bank from suffering financially.
Directors who are liable for such losses are generally not re-elected as directors. But sometimes, if there is a huge loss or if the law is violated, the director or directors responsible for such actions are removed by a majority vote in the board meeting or by the central bank or even by the court. It should be noted that directors are liable not only for malpractice but also for negligence.
According to Sherman Hzelting, a bank expert, (“lt has been established that the director is liable not only for wrongs, but also for negligence) bank directors are held responsible under both the common law and criminal law of the country.” can go namely:
Criminal Liabilities: It was pointed out some of the cases for which criminal cases can be filed against the directors, officers, representatives or employees of the bank.
(a) Indication of defective or false accounts or furnishing of reports thereof.
(b) wrongly identifying or endorsing checks or other documents;
(c) Theft, embezzlement etc.
(d) Obstructing the performance of duties by impersonating any officer or employee.
(e) furnishing wrong information to Central Bank and other directive and regulatory authorities.
(f) Disobeying the provision of non-loaning to the Bank Operations Examination Information Instruction Authority.
(g) Disobeying the order of directors not to take loans from the Trust Fund.
(h) disobeying an order by the Director not to accept anything in order to assist the bank in obtaining bar from other sources as required.
(i) Disobeying instructions not to finance the activities of any particular political party or make any political donations from bank funds.
(j) Disobeying the order not to engage in any lottery, gambling, gambling from bank funds. Bank directors can be sued in court for the above offences. And conviction for any of these offenses is punishable with imprisonment along with removal from office of the bank director.
Common Law for ngegigence:
Damages caused by mere negligence despite the necessary facilities are considered as common law liability of the directors. It is not appropriate to hold the directors responsible if the bank or the class of persons associated with the bank suffer any loss as a result of the decisions taken by the directors with ordinary care, intelligence and wisdom.
In this case the director has to prove directly or indirectly to the court or to the person or group suffering the loss that such loss occurred despite their best personal care and caution. For example, it can be said that if a borrower fails to repay the loan, then the bank manager will not be responsible. However, if it is proved that due to insufficient inspection, supervision, negligence of the directors, the loan amount has failed to come back, the directors will be responsible.
Also if the bank suffers any loss as a result of taking wrong decisions due to the willful absence of any director or directors from the board meeting then the bank will be held guilty at common law.
Risk Management of Director’s Liabilities:
The nature, extent and examples of risk to managers have previously been given. Managers can manage risk in a number of ways. Generally, this form of risk is managed in three ways. Namely:
(A) Avoidance of such actions may arise liability- Avoidance
(B) To prevent or control liability – Prevention and Control
(C) Transfer of risk – Transfer
(A) Avoidance of such actions may arise liability :
In other words, if one is a director, one can assume any kind of responsibility while performing the duties, not to be a director in any way. The future director who is unable to do justice to the bank due to his personal busyness and limitations in applying wisdom, intelligence and conscience for a sufficient amount of time, it is a better option for the bank and himself not to be a director of the bank.
(B) To prevent or control liability :
A second option for liability management is to adopt a positive role regarding risk. That is, to be aware of the relevant rules and regulations and clear processes and individuals before taking any action or action that has the risk of being held responsible. By doing so and taking careful steps there is no possibility of error.
Acting on hearsay or unwritten advice without first ascertaining the legality or liability may result in risk not being absolved. Note that many directors are accused and humiliated by private secretaries or confidantes due to wrong decisions.
(C) Transfer :
In spite of taking good care, the risk of liability arising in some cases is accepted by some insurance companies in exchange for regular premiums. Such risk insurance is called director information officer liability insurance. Testing will show that this is an option for second stage risk management.
Retirements of Directors:
The responsibilities of managers of banks and financial institutions are more than those of other general business institutions. Therefore, it is necessary to have people with qualifications and experience as directors in the board of directors of the bank to maintain the balance of the board. Moreover, if the team consists of experienced and motivated individuals, it is possible to take challenging decisions based on experience.
Hence the voluntary retirement of older managers after a certain age is followed by many banks in the West. This enables fresh faces on the board of directors on the one hand and frees from over-aged and unbalanced flawed decisions on the other hand. According to the author, if the bank manager is more than 65 years old, he should retire.