Corporate Governance Practices in Banking Sector: A Study of Selected Private Sector Banks and Public Sector Banks in India

Abstract

Corporate Governance (CG) is the key of corporate excellence. It extends beyond good corporate performance and financial propriety. After experiencing a crucial phase of corporate crises during 1970-1990, including financil scam in developed countries (U.S.A. and U.K., etc.) and as a wake up response to major scandals and corporate failures, need to tighten surveillance over corporate framework and behaviour was realised. CG has also been under constant scrutiny as an issue that has gained widespread importance in Indian scenario. Its significance was realised after experiencing the Harshad Mehta stock scam in 1992, which led to various initiatives in the form of guidelines, in order to strengthen CG by ensuring transparency and responsible board structure. 'Desirable Code on Corporate Governance' initiated by CII in 1998 was one of the first initiative in this direction. Subsequently, scam in Satyam Software Services Ltd. during 2009 made a dent on prevailing statutory provisions of Companies Act, 1956 and led to fill gaps by strengthening existing Companies Act 1956. The Companies Act, 2013, has been introduced to ensure effective governance and respond promptly to the corporate misgovernance and scandals in Indian corporate sector.

In the light of new Company Act 2013, prime focus of present study is to analyse and compare the CG framework being practiced by selected banks. The present study is carried out on leading 8 Indian banks (4 public sector banks [PuSB] and 4 private sector banks [PvSB]), which are selected based on judgemental sampling, where the market capitalization and year of their inception is referred. Data is collected from the secondary sources of bank's latest annual report for 2015-16. Key parameters including composition, mandate and frequency of meetings of the Board, Risk Management Committee, Audit Committee, Stakeholder Grievance Committee, Remuneration Committee and CSR Committee, etc., is analysed. Research findings have shown that among the private sector banks (PvSB), ICICI Bank Ltd. (ICICI) has maintained higher amount of independence and transparency. On the other hand in case of public sector banks (PuSB), the State Bank of India (SBI) was found most proactive bank, while maintaining the highest amount of independence in terms of more active participation of Non-Executive Independent Directors in various committees of the Board.