Corporate Governance in Indian Banks- A Revisit

Big Bang Theory states that the universe emerged from a high-risk event and probably for that reason, each activity in nature too is embedded with risk. By the inherent nature of duties being performed, bankers irrespective of cadre, undertake many risk ingrained decisions on a daily basis and risk control measures too get simultaneously executed intuitively, thanks to the frequency of such decisions. On the other hand, if a risk results in loss, the bank concerned by itself or at the insistence of the regulator strengthens the controls for the process or product. For example, the cyber-attack suffered by Bangladesh Central Bank resulting in a loss of USD 81 Million and a humungous fraud perpetuated on PNB by its own employees, compelled RBI to rescind the LOU route of foreign trade finance and to overhaul the SWIFT related controls. Thus, Indian banks have a dynamic system of checks and controls that responds to an evolving external environment. Risk control has been a thrust area of all companies and adoption of better corporate governance practices quickened the institutionalisation of the risk management frame work as it is an integral component of balancing interest of various stake holders. 

Roles of regulators, readiness to accept the best global standards and corporate governance practices evolved over a period have been crucial in improving the culture of corporate sector in India on all aspects.  As far as banking sector is concerned, the professionalism of RBI, the regulator of banking sector, has been widely acclaimed for the prudent steps taken by it to manage the fallout from the global meltdown following the sub-prime crisis in USA which helped the domestic economy to sail through turbulent weather with minimum impact. But, within a decade, the same RBI is at the receiving end and compelled to re-examine its own governance framework.  

There has been a long gap between the Satyam fiasco and the recent IL&FS debacle, but the frequency and severity of the recent incidents reported from corporate world, including that from the banking sector, make the onlookers wonder whether corporate governance is just a paper tiger. Over a period, the country has done a lot in governance standards and the standards have improved substantially. Yet clearly, deficiencies exist. And that compels the public to believe that the whims and fancies of a limited few, their personal goals and top-notch networking make the corporate governance a mere scarecrow.    

Corporate Governance related developments in Indian Banking and Finance sector 

•    Gross Non-Performing Assets (GNPAs), or bad loans of banks in India stand at Rs 10.25 lakh crore as on 31 March 2018. The quantum is a whopping 11.8 % of total loans given by the banking industry. (June 2018)

•    Fraud of more than Rs. 13,000 Cr perpetuated by few employees in a branch of PNB, the second largest public sector bank, remains undetected for years. (January 2018) 

•    MD & CEO of Axis Bank decides to step down prematurely despite fourth extension of term as MD & CEO till June 2021. (April 2018) 

•    MD & CEO of ICICI Bank decides to exit after entangling in a conflict of interest controversy. (October 2018)

•    RBI restricts tenure of the founder and CEO of YES Bank till January 31, 2019 though the board of the bank had extended the term for three years effective from June, 2018. (October 2018)

•    Doubts arises on fulfilment of commitments by IL&FS on Rs. 91,000 crore debt. Fiasco leads to market crash, erosion of wealth of investors and indicates liquidity crisis in market.  The Central Government replaces the entire board of the company. (September 2018)

•    The board of ICICI Bank decides to convert the voluntary resignation of its MD & CEO Ms. Chanda Kochar as ‘termination for cause’ with claw back of all bonuses amounting to Rs. 350 cr paid to her since April 2009. (Jan 2019).   Please continue reading the article  Measures to Ensure Corporate Governance in Indian Companies