Bringing long-awaited clarity to overlapping regulatory requirements, the market regulator has made it clear that its listing regulations on corporate governance will prevail over the central bank’s governance framework for listed banks. The clarification establishes that quarterly corporate governance compliance reports must be reviewed and approved by the full board of directors, and cannot be delegated to audit committees or other board-level panels.
A Regulatory Overlap Comes Into Focus
The clarification was issued through informal guidance in response to a query from a listed public sector bank. Regulatory observers believe the guidance will have implications far beyond the individual case, serving as a reference for other listed banks and regulated entities operating under both banking and capital market regulations.
At the heart of the issue lies Regulation 27 of the Listing Obligations and Disclosure Requirements (LODR) Regulations. The provision requires listed entities to submit quarterly corporate governance reports after review by the board of directors. The bank seeking clarity had argued that the central bank’s governance directions allow public sector banks to delegate certain statutory and compliance-related responsibilities to board committees, enabling the board to focus more closely on strategic matters.
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The Question of Delegation
On this basis, the bank had sought confirmation on whether oversight and review of the quarterly integrated governance report could be handled by the audit committee or a similar committee of the board, rather than being placed before the full board. The request also reflected the practical challenges faced by listed banks in reconciling two regulatory frameworks that differ in structure and compliance philosophy.
SEBI’s Interpretation of Listing Obligations
The market regulator, however, drew a clear distinction between the two regimes. In its response, it stated that the requirements under the LODR Regulations, along with related circulars issued to facilitate ease of doing business for listed entities, are separate from and independent of the central bank’s governance framework. Compliance with banking governance directions, it said, does not dilute or override obligations arising from listing regulations.
The guidance further clarified that even if banking governance directions permit a committee of the board to monitor compliance requirements, such monitoring cannot be regarded as compliance with the provisions of the LODR Regulations. For listed entities, particularly banks with public shareholding, corporate governance disclosures are integral to market transparency and investor protection, and therefore require direct board-level accountability.
The bank also informed the regulator that it had independently sought clarification from the stock exchange on the matter, and had received a negative response on allowing delegation of the quarterly governance report review. This, the regulator noted, reinforced the interpretation that listing norms leave no flexibility on this aspect of compliance.
Reinforcing Board-Level Accountability
While issuing the clarification, the regulator emphasised that informal guidance is based strictly on the facts presented by the applicant and does not constitute a binding decision of the regulator’s board. It also cautioned that a different factual matrix could potentially lead to a different regulatory outcome. Despite this caveat, market participants expect the guidance to be widely relied upon by other listed banks facing similar compliance questions.
Governance experts say the clarification strengthens the principle that listed entities operate within a disclosure-driven regulatory framework, where accountability for public disclosures rests squarely with the board of directors. Unlike internal governance or administrative matters, quarterly corporate governance reports are mandatory public disclosures, requiring collective responsibility at the highest level of management.
The guidance is also expected to ease uncertainty for compliance teams in listed banks, many of which have struggled to align the committee-centric governance model under banking regulations with the board-centric approach mandated by market regulations. By clearly establishing the primacy of listing rules in matters of market disclosure, the regulator has significantly reduced the scope for interpretational conflict.
Under the informal guidance mechanism, regulated entities can seek the regulator’s interpretative view on specific regulatory provisions by paying a prescribed fee. The framework is designed to help entities avoid potential regulatory violations before decisions are implemented and to provide clarity where regulations intersect. Recently, a dedicated nodal cell has been created to streamline the handling of such guidance requests, replacing the earlier department-based process.
