SUMMARY OF FINDINGS AND SUGGESTIONS

In this chapter an earnest attempt is made to summarise the.conclusions

hither to drawn in the course of discuisions made earlier on various aspects of

corporate governance in banking system. It aims at bringing together all the

inferences drawn by way of summing up the relevant observations made hither to in

the previous chapters in the course of the study. The conclusions were drawn on

various aspects of corporate governance practices in .banking sector which are

presented in the preceding chapters. Based on these conclusions arrived at, an

appropriate suggestions were also offered to tone up the performance of the banks

through effective implementation of corporate governance principles. The efforts

were made in this chapter to strengthen the Banking Sector through good and

universally acceptable Corporate Governance Practices in India in particular md

other counterparts in general.

A banking institution is indispensable to a modern society. It occupies an

important place in a nation's economy and plays a pivotal role in the economic

development of a country. It forms that core of the money market in an advanced

country.

In India, the question of Corporate Governance has come up mainly in the

wake of economic liberalization and de-regularization of industry and business. In

the process of economic stabilization and to strengthen fwther, India launched a

series of economic reforms in 1991, in response to a severe balance of payments

crisis and other economic destabilization on the global front, many of which directly

or indirectly led to a substantial liberalization of the corporate sector.

Corporate govemance is particularly important for banks, given the bank's

important role in the financial sector. The rapid changes brought about by

globalization, deregulation and technological advances are increasing risks in the

banking systems. Moreover, unlike other companies, most of the funds used by

banks to conduct their business belong to their creditors, in particular their

depositors. Linked to this is the fact that the failure of a bank affects not only its own

stakeholders, but may have a systemic impact on the stability of other banks.

Theoretically, information asymmetry gives rise to agency problems and conflicts of

interest between owners and managers. ~ ~ o d corporate governance is designed to

240

addreps this problem. Further, government regulations and frequent interventions

reduce the incentive for effective monitoring and, at the same time, make

supervision (or supervisors) less effective. In this context, the corporate governance

of banks becomes a more important challenge as compared to other firms.

India should have the high quality institutions necessary to sustain its

impressive current growth rates in tht: yem to wme, if the same trend is to be

maintahed. 'l'%e coqxm-ite sector in India could not remain indifferent to the

developmats that were taking place in the UK, which had a tremendous influence

on India too. They triggered off the t h i i g process on wrporate governance in the

country, which finally led to the government and regulators laying down the ground

rules on it. As a result of the interest generated in the corporate sector by the

Cadbury Committee's report, the issue of corporate governance was studied in depth

and dealt with by the Confederation of Indian Industry (CII), the Associated

Chambers of Commerce and the Securities and Exchange Board of India (SEBI).

Though some of the studies on the subject did touch upon the shareholders' right to

"vote by ballot" and a few other issues of general nature, none can claim to be wider

than the Cadbury Report. Prominent among them are: Working Group on the

Companies Act (1 996), Kurnar Mangalam Birla Committee (1 999), Naresh Chandra

Committee (2002), The SEBI's Follow-up on Birla Committee (2002), Narayana

Murthy Committee (2003) and J. J. Irani Committee on Company Law (2005) and

Corporate Governance Voluntary Guidelines 2009.

In India, the four clusters of legal arrangements have been developed to

respond to corporate governance problems. These are securities market regulations,

the fiduciary responsibilities of directors and officers, laws governing takeovers and

rules governing shareholder voice. The two most important laws that control the

listed companies are the Securities Contracts (Regulation) Act, 1956 which regulate

all new public offerings, dealings in stock market and the functioning of the stock

exchanges in India and the Securities and Exchange Board of India Act, 1992 which

created the Securities and Exchange Board of India (SEBI), giving it the authority to

administer the Securities Contracts (Regulation) Act and all the other regulation of

securities. The major purpose of these laws is to require regular, accurate, and timely

public disclosure of financial information by any company that issued publicly

traded securities and to instill public mnfidence in the reliability and axumcy of

information so reported. A new law call'ed the Indian Competition Ad, 2002

been enacted to replace the MRTP Act, 1969. The objective of the new law is to

prevent practices having adverse effect on Ampetition, to promote and sustain

competition in markets, to protect the interest of consumers and to ensure freedom

of trade carried on by other participants in markets and for matters connected

therewith or incidental thereto.

Corporate Governance is aimed at ensuring proper governance of business as

well as complying with all the governance noms prescribed by regulatory board for

the benefit of all interested parties including society. The basic objective is the

maximization of long-term shareholders value within the parameters of public law

and social ethics to give an impression to customers and employees about the

transparency and fairness of business.

Corporate Governance has fast emerged as a benchmark for judging

corporate excellence in the context of national and international business practices.

From guidelines and desirable code of conduct some decades ago, corporate

governance has come a long way and is now recognized as a paradigm for

improving competitiveness and enhancing efficiency, and thus improving investors'

confidence and accessing capital, both domestic as well as foreign. The framework

for corporate governance is not only an important component affecting the long-term

prosperity of companies, but it is a leading species of a large genus namely, National

Governance, Human Governance, Societal ~overnance,. Economic Governance and

Political Governance. Government provides necessary conditions, framework and

environment to the corporate to operate. There is, however, no universal recipe for

good corporate governance since business environment varies fiom country to

country.

Corporate Governance is, therefore, a systematic approach where the

connected members, management and employees are expected to cooperate in the

decision making process of the company. Based on some fundamental reasons,

corporate governance holds its premise that the business should be conducted by the

desires of shareholders. It identifies the distribution of rights and responsibilities

among a variety of stakeholders in the company. It also briefly outlines h e structure

and process for judgment on matters relaied to the company dealings. In the context

of the above, the following are the broad objectives on which caporate governance

can be measured: i) Suggested model code okbest practices, ii) Prefnred internal

systems, iii) Recommended disclosure requirements, iv) Board members' role, V)

Independent director, vi) Key information to the board/committee, vii) Committees

of board, viii) Policies to be established by the board and ix) Monitoring

performance.

Effective corporate governance is important for any company to be

successll irrespective of the type of business it does. Corporate governance has, of

course, been an important subject of discussion since many years. Scholars and

researchers from finance fields have actively investigated the importance and

efficacy of corporate governance for at least a quarter of a century. There have been

intense debates and brainstorming over corporate governance practices particularly

in the developed nations. However, the effectiveness of corporate governance

practices in the developed nations tells an ironic story from the CG practices point of

view. The volume of scandals and lack of transparency in governance in the

developed nations nullifies its true commitment to governance practices compared to

the developing world. Therefore, much prior to the recent wave of corporate fiauds

in developed economies, corporate governance has been a fundamental subject in

emerging economies.

Banking sector being the dominant and vital segment deserves the utmost

attention. Banking is the systemic institution that not only possesses the potential of

a great catalyst for growth but also, on the other hand, has the capability of causing

calamity to an economy. There is considerable deviation in practices of corporate

governance being followed by the banks in India. When banks efficiently mobilize

and allocate funds, this lowers the cost of capital to firms, boosts capital formation,

and stimulates productivity growth. Thus, the functioning of banks has ramifications

for the operations of firms and the prosperity of nations.

Corporate Governance as the set of mechanisms - both institutional and

market-based - that induce the self-interested controllers of a company (those that

make decisions regarding how the company will be operated) to make decisions that

maximize the value of the company to its owners (the suppliers of capital). Or, to put

it another way: "Corporate governance deals with the ways in which suppliers of

finance to corporations assure themselves of getting a return on their investment."

'The governance mechanisms that have been most extensively studied in the

US can be broadly characterized as being either internal or external to the firm. The

internal mechanisms of primary interest are the board of directors and the equity

ownership structure of the firm. The primary external mechanisms are the external

market for corporate control (the takeover market) and the 1egaVreguIatory system.

In India, a strident demand for evolving a code of good practices by the

corporates themselves is emerging. In the global perspective, it may constitute a

necessity to cut through the maze of prevalent questionable practices, indefensible

management attitudes to stakeholders and penetrable non-disclosures. The initiatives

taken by the Government in 1991, aimed at economic liberalization and

globalization of the domestic economy, led India to initiate reform process in order

to suitably respond to the developments taking place the world over. On account of

the interest generated by Cadbury Committee Report, the Confederation of Indian

Industry (CII), the Associated Chambers of Commerce and Industry (ASSOCHAM)

and, the Securities and Exchange Board of India (SEBI) constituted Committees to

recommend framework for good Corporate Governance. An examination of

practices of accounting standards, and their issues in Indian industry may help to

understand the existing practices of accounting standards, which in turn help in

designing the effective standard practices so as to ensure good Corporate

Governance. In this context, an attempt is made here to examine the accounting

standards and their practices in India, with a view to strengthen the accounting

standards and improve their practices for good Corporate Governance.

There have been several major corporate governance initiatives launched in

India since the mid-1990s. The first was by the Confederation of Indian Industry

(CII), India's largest industry and business association, which came up with the first

voluntary code of corporate governance in 1998. The second was by the SEBI, now

enshrined as Clause 49 of the listing agrekent. The third was by the Naresh

Chandra Committee, which submitted its report in 2002. The fourth was again by

SEBI the Narayana Murthy Committee, which also submitted its report in 2002.

Based on some of the recommendations of this committee, SEBI revised Clause 49

of the listing agreement in August 2003. Subs~umtly, SEBI withdrew the revised

Clause 49 in December 2003, and currently, the original Clause 49 is in force. But

the corporate governance reforms in India are at a crossroads now; while corporate

governance codes have been drafted with a deep understanding of the governance

standards around the world, there is still a need to focus on developing more

appropriate solutions that would evolve frop within and, therefore, address the

India-specific challenges more efficiently.

Above attempts made by the various regulating bodies show a rising level of

concan for the manner in which the corporate manage themselves and their geo

political environment. As more and more multi nationals chip in to utilize cheap

Indian labors - the regulating bodies will not have the only onus of task building,

but will also have to ensure means to implement the regulations. Not only this, as

more and more stakeholders make an attempt to maximize their profits, the investors

(especially the smaller ) will have to be wary of the crafty speculators who can ruin

the market confidence and decimate them. Investor training, therefore, is an

important area of immediate action. Organizations cannot create long term value

without having appropriate corporate governance policies in place, as the need of the

hour is to not only manage earnings, but also to create value. It becomes of utmost

importance especially for a country like India, as it 'comprises the various odd

sections of the society that are yet to realize the value of information to small

investors. Moreover, with the change in the context there is also a need to evolve the

governance policies suiting the geo political, social and economic environment of

that state.

In the last few years the thinking on the topic in India has gradually

crystallized into the development of norms for listed companies. The problem for

private companies, that form a vast majority of Indian corporate entities, remains

largely unaddressed. The agency problem is likely to be less marked there as

ownership and control are generally ngt separated. Minority shareholder

exploitation, however, can very well be an important issue in many cases,

belopment of norms and guidelines are an important first step in a serious

effort to improve corporate governance. ' h e bigger challenge in India, however, lies

in the proper implementation of those rules at the ground level. More and more, it

appears that outside agencies like analysts and stock markets @articularly foreign

markets for companies making GDR issues) have the most influence on the actions

of managers in the leading companies of the country. Buf their influence is restricted

to the few top (albeit largest) companies. More needs to be done to ensure adequate

corporate governance in the average Indian company. Even the most prudent norms

can be hoodwinked in a system plagued with widespread corruption. Nevertheless,

with industry organizations and chambers of commerce themselves pushing for an

improved corporate governance system, the future of corporate governance in India

promises to be distinctly better than in the past.

Internationally, the issue of corporate governance for banks has been

recognized as one of the most important issues of the corporate sector. The OECD

has produced a set of corporate governance principles that have become the core

template for assessing a country's corporate governance arrangements. Similarly, the

Base1 Committee on Banking Supervision has made recommendations for the

corporate governance of banks. Following the recommendations of the Base1

Committee, OECD and the IMF, many developed countries have designed policies

to implement best practices for bank management. Developing countries, especially

emerging economies in the South Asian region, followed the same recommendations

and introduced certain guidelines for corporate governance. In India (as well as other

South Asian countries), the banking sector restructuring took place only in the early

1990s and some steps towards good governance were initiated in late 1990s and

early 2000. As such, not enough time has passed to conduct a meaningful

assessment of the impact of these policies on bank efficiency.

The main banking sector reforms were implemented during 1992-94. The

aims of these reforms were to introduce greater transparency, to improve investor

protection, to enhance efficiency, to improve competition and to upgrade the

standards of customer service. The liberalization that started in India about thirteen

years ago has led to far-reaching changes in the financial structure. At present, India

has 53 private-sector banks, which represent about one third of all banking activities.

The k m v e Bank of India (RBI) supervises all of the above-mentioned

institutions and markets. It has direct responsibility for the l i m i n g and supvision

of financial institutions and more generally the responsibility for the smooth

functioning of the entire financial system. In ;he pre-refbm years of 1949-88, the

RBI played a critical role in implementing policies to support the diversion of

financial resources to the central government in order to carry out targeted credit

programmes to expand industrial capacity and agricultural outputs. Nowadays, the

RBI is more concerned with the deregulation of the financial sector, although

retaining responsibility for overall macroeconomic stability. All banks are now

required to extend credit to priority sectors, namely agriculture, small-scale

industries and small businesses, at concessionary interest rates. Up until 1990, this

directive applied to only the public sector banks but with deregulation this rule has

been extended to the private sector banks as an 'advisory' guideline. In addition, 1

per cent of credits are required to be made to certain sections (the scheduled caste

persons) of the community at a concessionary interest rate.

The governrnent-owned banks, which still dominate the banking sector, are

now under pressure to improve operational efficiency to compete with new entrants

and now face increased scrutiny in relation to prudential norms. More private banks

are now being licensed to increase competition in order to improve customer service.

To sum up, India has been able to significantly reform its banking sector, which is

essential to sustainable growth. However, with more active public and private

banking sectors in place, there is a need to implement some "self- discipline"

measures, or corporate governance guidelines.

In common practices, depositors rely on the government role in protecting

their bank deposits from exprop.riating management. It might encourage economic

agents to deposit their funds into banks because a substantial part of the moral

hazard cost is guaranteed by the government. In other words, even if the government

may explicitly provide deposit insurance, bank managers probably still have an

incentive to opportunistically increase taking risk. In case of any risk to deposits

government will bear risk in the form of insurance. This moral hazard problem can

be overcome through the use of economic regulations such as asset restrictions,

interest rate ceilings, reserve requirement$, and separation of commercial banking

from ~ ~ ~ c e and investment banking. The effects of these regulatiws limit the

Bbility of bank managers to ova-issue'liobilities or divat assets into high-risk

ventures.

n ~ , the special nature of banking requires not only a broader view of

corporate governance but also government intervention through regulation and

supervision in order to restrain the expropriating management behavior in banking

sector. In this view, managers and owners are subject to the regulation. In general,

the literature on bank regulation emphasises the stated purpose of regulation as that

of maintaining the integrity of the market system. Recent attention is more focused

on the role of government in the financial sector; government's participation as the

owner of financial intermediaries, government's intervention in pricing and

allocating credit, and government's role in regulating and supervising financial

intermediaries. Regulation is commonly associated with the resolution of market

failure in provision of the public good of financial stability. The characteristic

limitations imposed are not concerned with market structure. (for examples barriers

to entry or power of market monopoly). Instead, the constraints imposed by bank

regulators in many countries attempt the opposite action.

In developing countries the central bank plays a bigger role in the economy

and cannot reasonably be expected to have a total hands-off approach or be totally

independent of government; it has to nurture hand-hold and actively manage many

aspects of the economy. To that extent a central bank in a developing country plays

both a traditional and a non-traditional role that includes building independent

institutions such as capital markets, sector regulators, watchdogs, etc. and plays both

a regulatory and a development role. Central banking hct ions in India are carried

out by the Reserve Bank of India since independence by taking over the erstwhile

Imperial Bank of India formed in 1935. RBI was originally set up to regulate the

issue of currency, maintain foreign exchange reserves to enable monetary stability

and generally to operate currency and credit system in the country. As the economy

progressed, RBI's role underwent several shifts. For instance, when India followed a

control rnodel of economic governance, RBI's monetary policy was focussed on

allocating resources to various sectors and maintaining price stability. A novel

mandate of RBI in its early stages was to finance five year plans, establishing

specialis4 institutions to promote savings and to meet the credit needs of the

priority sector.

RBI has been largely ~uccessfkl in its objectives of growth with stability,

developing India's 'banking and haxicia1 sector and ensuring evolution of

wmpctitive mark-. Inevitably, because of the liberalisation process, Indian

banking sector is subject to greater shocks from external sources; for instance, a

market-based exchange rate system has integrated the Indian economy into the

global economy but the exchange rate has become more yolatile.

The supervisory Process in some countries is getting close to this issue when

supervisors examine the systems that banks have in place for managing their risk.

We suspect that as important as risk management is as a process, the incentives

inside the individual banks for taking risk will determine the efficacy of any

processes that are written down. Propose, as an adjunct to the standard Anglo-

American model of corporate governance, an expanded set of fiduciary duties for the

bank corporate officers and directors, stimulated perhaps by the creation of long-

tenn stakeholders that characterizes the so-called Franco-German model. Certainly,

the threat of legal recourse for those who suffer losses when directors do not fulfill

their fiduciary duties would improve the incentives for this group, and it might also

encourage them to support reforms in compensation policies for senior bank

officers.

To improve corporate governance of financial intermediaries, policy makers

must seek to enhance the ability and incentives of creditors and other market

participants to monitor banks.

Recently, subordinated debt proposals have received increased attention. The

above arguments apply to nonbank financial intermediaries. Fortunately, pension

funds and insurance companies are less subject to runs and generally have been

smaller in developing countries.'Till now, in emerging markets they generally have

had far less assets under their control than banks, but it is likely that this will change.

Insurance products generally show a high income elasticity of demand and the

lowering of population growth rates and flattening of demographic pramids may

heighten interest in funded pension systems, so attention to their better governance is

timely. Gathering more and better data on these branches of finance accordingly

should be a priority, for if they follow the experience of high income countries, their

assets will soon dwarf those of banks. Keeping in view all the above, a careful study

about the corporate governance has be& c&ed out and the findings have been

made in the following paragraphs followed by due suggestions.

Findings of the Study

The following are the main findings of the present study

Board of Directors of SBI

It is observed that horn 2005-07 the SBI maintained 70% independent

directors, but from 2008 to 2012 the bank has been gradually decreasing the

independent directors to 66% in the board. And also the SBI had furnished all the

information about all the directors.

In the year 2007-08 the company board had met 11 times. With regards to

these meetings the bank does not disclose any information related to those who

attended the meeting and also the bank does not disclose board members names for

that particular year.

Audit Committee of SBI

The company has complied with the conditions of the Clause 49 of the

Listing Agreement. It is observed that in some of the years it did not fiunish the

details to audit committee directors. The SBI has disclosed the details of the board of

directors like the number of meetings attended by the directors, their tenure etc,. The

bank has not disclosed any information relating to the corporate governance report

on audit committee.

Risk Management Committee of SBI

It is found that the bank has constituted risk management committee on

March 2004 onwards, but in the year 2007-08 the committee had 3 directors in the

board. In the year 201 1 - 12 the committee had 9 directors in the board but out of 9,

only 7 directors had met in the board meetings. The SBI has not disclosed the

information related to board meetings and what decision the committee has taken

relating to risk.

Remuneration committee of SBI

The SBI constituted remuneration cowittee on March 2007. From 2008-12

the bank disclosed only the number of board of directors in the board, but the bank

did not disclose about remuneration cornmitt& cha-ter. How many meetings the

bank conducted, who attended etc, but in the year 2009-10 the bank disclosed the

details of directors joining dates and their remuneration: And it is observed that the

bank disclosed about remuneration to be paid for attending each meeting to non-

executive directors.

Shareholders / Investors Grievances Committee of SBI

It is found that the Bank had furnished details of only how many

complaints/requests received and replied to but it did not gave the details of queries

and complaints received and replied to in the corporate governance report.

Board of Directors of AB

There are no big changes in the size of board of directors, and also in

independent directors. But from 2009-1 0 to 201 1-201 2 there is increase in executive

directors. It is observed that the Andhra bank is having sizeable number of directors

in the board of directors.

It is found that Andhra Bank is disclosing all the information related to board

of directors. (Joining date, Experience, Designation, etc.,) but most of the absentees

in the board meetings are nominated directors. i.e., (RBI, Government of India, and

part time directors).

Audit Committee of AB

It is observed that in the year 2005-06 in Andhra Bank, Independent directors

nominated by RBI had not attended a single meeting. The bank has not disclosed

any information relating to the corporate governance report on audit committee.

Risk Management Committee of AB

There is gradual increase in the size of the board. But there was gradual

decrease in board meetings in the year 2002-03. It was 6, now it is 4. And also the

bank failed to prepare report of the risk committee on corporate governance.

Shareholders I Investors Grievances Committee of AB

In the period 2005-06, 2006-07, thi bank had received huge complaints

cornpard to other years, i.e., 12648 and 12503, respectively. But the bank had

given details of complaints received and replied to in the corporate governance

Andhra Bank Remuneration Committee

The Andhra Bank constituted a remuneration committee on 2005, with the

initiative of Ministry of Finance. The bank had disclosed the details of remuneration,

how much amount was paid and to whom. It is observed that the bank has been

conducting meeting yearly once only, with combination of nominated directors. But

the bank failed to disclose the details of attendance of board of directors.

Board Strength and Size of the HDFC Bank

And in the year 2003-04 the bank had not disclosed about non executive

directors on the board. During the period 2006-09, the bank had 9 directors on the

board. If the bank chairman is an independent chairman, the number of independent

directors should be 113 or approximately 33%. But the percentage of independent

directors in HDFC is 45%.

Audit Committee Size and Attendance in HDFC

In the year 2002-03 the bank had not disclosed about audit committee

charter. In the year 201 1-12 specifically the bank disclosed audit committee charter.

It is observed that the bank had clearly disclosed committee decisions, what the bank

had done in the meetings, and regarding changing the policies, and

recommendations.

Risk Management Committee

In the year 2002-03 the risk committee had 5 directors on the board, but in

the year 201 1-12, the directors in the board were 3. It is found that there is gradual

decrease in the board size.

HDFC Bank Remuneration Committee

The HDFC bank is disclosing the d&ils of remuneration committee. In the

year 2002-03 the bank had not disclosed aboutromposition of the board. In the year

2003-04 the remuneration committee consisted of independent directors in the

board. During this period 2005-12 except the chairman all others on the board were

independent directors.

Board Strength and Size of the ICICI Bank

And also fiom 2002 to 2012 the ICICI had not disclosed any information

relating to non executive directors on the Board. It is observed that fiom 2005-06 the

ICICI maintained 70% independent directors, but in the year 201 1-2012 the bank

gradually decreased the independent directors to 58% on the board. And also the

ICICI had furnished all the information about all the directors.

Audit Committee of ICICI Bank

It is found that the ICICI bank audit committee size decreased. And the

ICICI bank Audit Committee is constituted as per RBI guidelines. The audit

committee is to meet at least 6 times a year.

ICICI Bank Risk Management Committee

In the year 2002-03 the bank has disclosed the combination of risk

committee and audit committee.

ICICI Bank Shareholders1 Investors Grievances Committee

All the complaints1 requests had been resolved. It is found that the bank did

not furnish the details of the queries received in the corporate governance report.

ICICI Bank Remuneration Committee

In the year 2006-07, the committee had met 3 times. Out of 5 directors 3

directors attended 3 meetings, 1 attended for 1 meeting, and 1 has not attended even

a single meeting. The reason had not been mentioned in the corporate governance

report.

ROA

The Mean value of SBI (0.90) is low'= than that of A.B, ICICI and HDFC.

And their mean values are 1.38, 1.24 and 1146 respectively. The CV (10.05) of

HDFC is low. So the performance is good &d also more consistent than that of

other select banks. But the growth rate (0.39%) is not significant. It is found that the

HDFC had high ROA than other sample banks. But ~ n d h r a Bank had better growth

rate than other sample banks.

ROE

The mean values of ROE of select public sector banks are 37.26% and

42.55%. Their performance is better than that of select private sector banks. The CV

of SBI, AB, ICICI and HDFC are 20.36, 33.77, 28.20 and 32.65 respectively. The

SBI CV result shows more consistent performance than others during the study

period. The Linear growth rates of all select banks are statistically significant.

Descriptive Statistics

Return on Assets

The mean value for ROA was 1.14%, with a minimum of 0.71% and a

maximum of 1.72% for public sector sample banks. In private sector sample banks,

the mean value was 1.35%, with a minimum of 0.98% and a maximum of 1.77%.

Results report that the profitability is based on total assets. It is found that the private

sample banks had higher ROA than Public sector sample banks.

Return on Equity

ROE averaged around 39.91 % in public sector banks with a minimum value

of 26.58% to a maximum value of 67.71%. The mean value of return on equity

decreased in private sector banks to 23.17% with a minimum value 14.73 of % and a

maximum value of 35.35%. Results of descriptive statistics show performance based

on shareholders equity is better in public sector banks than in private sector bankq.

Board of Directors

Board of Directors (BOD) as reported in descriptive statistics, varies

significantly in Public and private sector banks in terms if size. The minimum size of

a board reported in public sector sample banks was 9.0 and maximum~size was 15.

The minimum size of a board reported in Private sector was 9 and maximum size

was 19. The average size of a board in Public and private sector banks was 11.55

and 1 3.05 respectively.

Non-Executive Directors

Board composition, which is the proportion of non-executive directors on the

boards, shows that there is a variation in the percentage of non-executive directors

on the boards in Sample banks. In Public sector banks, the number of non-executive

directors ranged from a minimum mean of 6.0% to a maximum mean of 12.0%, and

in private sector sample banks it ranged fiom a minimum mean of 6.0% to a

maximum mean of 16.0%. The mean proportion of the non-executive directors on

the boards was 8.90% in public sector and 10.50% in private sector banks, which

shows that non executive directors proportion in the board was higher in private

sector sample banks, than in public sector sample banks.

Total assets (TA)

Total assets (TA) of the companies in the sample had a minimum value of

19852 Crores, a maximum value of 1340000 Crores and a mean value of 330960

Crores for Public Sector Banks. The minimum for Private Sector banks is 30425

Crores, the maximum is 474000 Crores and the mean value is 223060 Corers.

Correlation Matrix for Sample banks

The results suggested that Return on Assets correlation was significant with

Risk Board of Directors, Reiurn on Equity and Total Assets in select Public sector

banks. But it is not significantly correlated with performance variables of Board of

Directors, Audit committee Board of Directors, Grievance committee Board of

Directors and Non-Executive Directors. On the other hand, both Return on Assets

and Total Assets have negative association with significant result.

Return on Assets was significantly correlated with Board of Directors and

Risk Board of Directors in select Private sector banks, suggesting that board

independence is associated with Return on Assets. But it is not significantly

correlated with total assets in select private sector banks.

b a r d of Directors is significantly correlated only with the Non-Executive

Directors of the firm in select public sector banks, but it is not correlated with other

select variables. Whereas in select Private Banks Board of Directors has

significantly negative correlation with Audit.cornmittee Board of Directors, and

Total Assets but it has positive association with Risk management Board of

Directors, Grievance Board of Directors and Non Executive Directors.

The presence of Audit committee Board of Directors is not significantly

correlated with select variables in the study in the public sector banks but it has

significantly negative correlation with Grievance Board of Directors and Non

Executive Directors in select private banks.

The presence of Risk Board of Directors significantly correlated with

Grievance Board of Directors and Non Executive Directors but in the case of Private

sector banks it is significantly correlated with Grievance Board of Directors and

Total assets. It has positive association with Grievance Board of Directors and

negative association with Total assets.

Return on Equity, Non-Executive Directors and Total Assets do not have any

association with select variables in public sector banks. In the case of private banks

Non-Executive Directors have significant negative association with Total Assets.

However, in the case of private sector sample banks correlation test results

support firm performance. Based on Return on Assets are significantly correlated

with Board of Directors, Risk management Board of directors and Non Executive

directors. Hence there was Corporate Governance impact on firm performance, in

private sector banks only

Deposits

In the field of deposits mobilization public sector banks are ahead of private

sector banks

Investments

In the area of investments the performance of private sector banks is

relatively better than that public sector banks.

Advances

In the field of advances public sector banks have performed better than their

private sector banks counterparts.

Suggestions

Basing on the observations made from the prec;?ding discussions, an attempt

is made here to offer some appropriate suggestions which are expected to be useful

to strengthen the banking sector in all respects. In the foregoing pages an attempt

was made to record the results of a carefully carried out first-hand study of the

Corporate Governance Practices in select Commercial Banks In India, with

particular reference to a sample of 2 Public and 2 Private Sector Banks, focusing on

their governance practices, their upward and downward trends, the possible reasons

for it, the adequacy or otherwise of the already made attempts to set things right. It is

necessary to add here that though the number of the sample Banks studied seems

small, they are fairly representative of the Banking sector in India as a whole, and

therefore the conclusions drawn have a general validity. In the following pages some

practicable suggestions are given to improve further the Corporate Governance

Practices.

Most of the existing governance framework is generally adequate and should

remain intact. But the devil is in the details of implementation. A key priority is to

increase the capacity of boards to oversee strategic risk taking and to accurately

judge institutional performance. Improving board capacity will require upgrading

the skills, experience, and leadership of nonexecutive directors and rebalancing the

productive tension that should come with a high-performing board.

Shareholders, particulafly longer-term institutional investors can play a

greater role to increase the capacity of boards in this respect through more

responsible interaction with the boards and a focus beyond short-term returns that

might compromise long-term safety and soundness.

The current environment for corporate governance in many countries can be

described as co-regulatory, where there is a mix of principles and mandatory

requirements. There are strong incentives io continue this stance worldwide as

increasing globalization of capital markets sees a growing recognitionand desire to

achieve uniformity and harmonization id the. areas of auditing and good principles of

corporate governance in banking institutions.

The most obvious governance-related policy responses have accompanied

government support to troubled financial institutions. In addition, international

organizations and standard setters should update th;? principles and guidelines,

focusing more on the effective implementation of existing rules than on radically

different or additional standards.

Governments and regulators are also pursuing reforms, both through

mandatory rules applicable to financial institutions and through enhancements to

corporate governance codes applicable to all listed companies. Reforms are expected

in executive remuneration, board independence and composition, and risk

governance structures.

The events that occurred provided the stimulus for significant changes to the

legislation and the principles concerning corporate governance but with all rules and

regulations it is necessary to balance the public interest of imposing rules and

providing strong guidelines.

Corporate governance is a mechanism to enhance corporate performance,

shareholders' confidence and wealth maximization to the shareholders. In this

context it is a dire need to strengthen corporate governance mechanism and

corporate variables as well by following sound corporate governance policies and

guidelines which are in vogue in the world.

The performance of the companies directly depends on the effectiveness of

the board size of the company. Therefore, the board should be constituted with

eminent experts who are having professional expertise in their respective fields. It is

observed that in the sample companies there is no uniformity in terms of the size of

the board, qualification, experience, professional expertise, remuneration and their

contribution to the overall development of the company. Therefore, it is suggested

that the banking institutions should follow strictly the corporate governance norms,

standards which are universally acceptable, so that, the companies can take into

consideration the sound corporate policies. .

The boards usually function keeping the best Corporate Governance

practices in mind. Still there are some areas that need to be looked in to. For

example, in risk management and internal audit boards have to play a major role in

this regard. Therefore, the board members should have proper information in the

manner in which internal audit in banks conducted and the risk is managed.

Banks in India should constitnte the board by giving priority to factors like

skills and experience of persons for appointing them as board directors. Simply age

or gender persons alone should not be taken in to consideration when appointing

directors. Bias in favour gender or age can harm the interest of the bank.

As per the Corporate Governance practices, the board meetings in banks

should be conducted frequently. However for making the board meetings effedive,

banks should take certain steps like informing board members in advance about the

agenda for meeting etc. This will help the board members to come properly prepared

to the meeting. Then they can have meaninghl discussions on the issues to be

discussed.

To protect the interest of the stakeholders, the boards should oversee risk

management and internal audit in banks. The board members should have the

professional skills and abilities to tackle the risk aspects in the banking business.

Banks should give high priority to transparency when giving information to

stakeholders like their shareholders, the media etc. Those banks should display on

their website all relevant financial and non financial information. This will help all

stakeholders like the shareholders and other to have easy accesses to vital

information. It is suggested that effective measures may be taken to ensure the

adherence to this as per the corporate governance regulations. The principles laid

down by the non-governmental organisations like Organisation for Economic Co-

operation and Development (OECD) and the lawfully established boards like the

SEBI may be prescribed to be followed scrupulously.

The banks seek shareholders' approval when appointing directors. But all

shareholders have a right to elect or dismiss directors. To elect properly qualified

directors shareholders should have all reletant information about persons being

appointed as directors, such as their qualification, skills experience etc. Therefore,

the banks should give priority to transparency in the area. That means they should

disclose all information about the directors to the shareholders. Banks should make

every shareholder aware of his rights and responsibilities it would be better if such

information is provide to shareholders in the form of a hand book.

TO ensure proper Corporate Governance pradices banks should arrange

regular meetings with important stakeholders like shareholders, and share all

relevant information with them like important development in the field of banking

and challenges facing the banks. The Banks should provide training to both board

members and senior managers on corporate governance issues by conducting

training programmes in partnership with other reputed global institutions.

More appropriate measures should be adopted in the present global market

milieu to avoid further corporate failures. In this context it is essential to follow

global corporate governance standards which are well accepted bench marks for all

corporate world. The banks should follow well and universally accepted corporate

governance standards effectively and efficiently. Therefore, all the countries should

make a serious effort for designing appropriate corporate governance mechanisms to

strengthen banking sector. It is hoped that these measures would certainly go a long

way in reshaping the banking institutions in the corporate world. Let us hope that the

banking institutions would flourish with the implementation of sound and effective

corporate governance standards in the global economic environment.