Vibha sharma (1273496)

Ques no. 50: Governance of Indian Banks

In general terms governance means of taking decisions and implementing those decisions. Banks whether scheduled or non scheduled are governed by the central bank of India i.e. RBI. 

             As per the Banking regulation Act 1949 Banks are those institutes which accept the deposits from depositors for the purpose of granting loans and money can be withdraw from account on demand through cash or cheque.

Corporate Governance of  Banks

The Corporate Governance is important because most of the banks are in public sector and they have to compete with other players in the market like Financial institutions, Mutual funds etc. They get restrictive govt. aid for capitalization of banks so they are engaged in transformation of ownership.

           Corporate Governance is different from regular operations of banks, whish is the basic responsibility of operating management. On the other hand, Corporate Governance is to create the environment to help the operating management to enhance the stakeholder’s value.

Scope :-

     It covers the variety of aspects:-

1. Protection of Shareholder’s rights.
2. Enhancing the Shareholder’s value
   
   3·     Composition and role of the Board of directors
   4·     Disclosure requirements ( Financial Statements)
   5·      Auditing Mechanism
   
    

   Present Management Structure of Public Sector Banks :-

·        1.Board of Directors ( Govt..,RBI and Shareholder’ nominees)

·        2.Management Committee (Govt. and RBI nominee)

·        3.Committee of Board ( responsibility of internal audit and control)

·        4.Other Advisory Committee constituted by the board

Parameters on the basis Corporate Governance can be Judged:-

·        1.Model code for the best practices

·        2.Preferred internal system

·        3.Disclosure requirements which include

Ø Level of transparency

Ø Role of directors and board

Ø Reporting System

Ø Policy Formulation

Ø Monitoring the performance

Development concerning Corporate Governance in Indian Banking:-

                  The regulator can improve the corporate governance and RBI has already taken no. of steps during the recent years to enhance the usefulness of good corporate governance. However, there is lot, which banks themselves have to do, since adherence to prudential norms is the minimum level of compliance and banks have to achieve higher standard for good governance.

                Reserve Bank of India regulate all commercial banks from 1934 i.e. as per the RBI Act 1934. It regulates the banks by setting up:-

·        1.Bank rate- 9% (not fixed)

·        2.Cash Reserve Ratio- 4.25%

·        3.Statutory Liquid Ratio-23%

·        4.Repo Rate – 8%

·        5.Reverse repo Rate -7%

·        6.Settings the norms for KYC(Know Your Customer)

Bank of Broda’s Philosophy on code of governance:-

·        1.Protect the interest of the shareholder’s value.

·        2.Ensuring  performance at all the levels.

·        3.Maximum return

·        4.Optimal usage of resources

·        5.There should voluntary regulations to set of strong corporate  governance practices.

·         6.Interest of the stakeholders.

Report on Corporate governance in Indian Banking Sector-By institute of Public Enterprise –Hyderabad 2013

             

            In India lots of initiatives have been taken up in understanding nuances of banking sector governance. The research would be conducted to understand the link between the ownership and governance and performance of banking sector. Average board size of public sector banks at 13. Larger boards means are resulting into more NPAs from the empirical evidences. But data collected from primary sources from boards members indicates that smaller boards are effective.

Conclusion:-

 RBI sets the norms for the betterment of the banks but the success of the corporate governance lies in minimizing the regulatory norms and adoption of voluntary codes.