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IJCRT2303905
IJCRT2303905
org © 2023 IJCRT | Volume 11, Issue 3 March 2023 | ISSN: 2320-2882
Research Scholar
Karnatak University,Dharwad-580003
Abstract
The Banking system is the backbone of the Indian Economy. Strong and Healthy economy is
the reflection of sound Banking system. Corporate Governance enhances the longterm
shareholders value through accountability, transparency and its statutory disclosures. This
paper discuss the Corporate Governance as an internal mechanism in banks and which is very
essential for good governance. Evolution and Need for Corporate Governance in Indian
Banking sector to achieve its shareholders protection and agency problem is reviewed through
various studies are considered. This paper briefly studied the relationship between Board Size,
Board Meetings and CSR spendings with Financial Performance of the Banks. 4 banks are
considered for the study in which 2 are public sector banks( State Bank of India & Punjab
National Bnak) and 2 are Private Banks (AXIS Bank & HDFC Bank)It is found that there is no
significant relationship between Board Size, Board Meetings ,CSR spendings with Financial
Performance.
Introduction
Corporate Governance ensures transparency which ensures strong and balanced economic development. This also ensures that the
interests of all shareholders (majority as well as minority shareholders) are safeguarded. It ensures that all shareholders fully exercise
their rights and that the organization fully recognizes their rights.
“Corporate governance is the combination of rules, processes and laws by which businesses are
operated, regulated and controlled. The term encompasses the internal and external factors that
affect the interests of a company's stakeholders, including shareholders, customers, suppliers,
government regulators and management.”
To name a few, an advisory group on corporate governance was formed under the
chairmanship of Dr. R. H. Patil, in March 2001.Subsequently, another consultative group was
formed in November 2001 under the Chairmanship of Dr. A.S. Ganguly, with an objective to
strengthen the internal supervisory role of the Boards in banks. In continuation, an advisory
group on banking supervision was initiated under the Chairmanship of Shri M.S.Verma. Based
on the recommendations of these advisory groups and considering the global corporate
governance experience, RBI had undertaken several measures to strengthen the corporate
governance in the Indian banking sector. Various areas, which were potentially important and
needed attention, were emphasized. It included defined role of supervisors, ensuring an
environment supportive to the sound corporate governance, effective organizational structure
to have responsible board of directors, etc. Considering the fact that Indian banking sector is
dominated by the government-managed banks (including public sector banks, nationalized
banks and rural banks, etc.), these issues were further examined. In this phenomenon, corporate
governance issue was important for public sector banks, especially because they constitute
major share of business in the banking sector. The Reserve Bank of India (RBI) and the
Securities and Exchange Board of India (SEBI) established in 1992 are two important statutory
bodies empowered to regulate and maintain the standard required for the effective corporate
governance. Another global initiative in 1999 of the Basel Committee also brought important
principles on corporate governance for banks.
1. 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.
2. The second was by the SEBI, now enshrined as Clause 49 of the listing agreement.
3. The third was the Naresh Chandra Committee, which submitted its report in 2002.
4. The fourth was again by SEBI — the Narayana Murthy Committee, which also
submitted its report in 2002.,
5. SEBI revised Clause 49 of the listing agreement in August 2003.Subsequently, SEBI
withdrew the revised Clause 49 in December 2003, and currently, the original Clause 49
is in force.
1. The CII Code: More than a year before the onset of the Asian crisis, CII set up a
committee to examine corporate governance issues, and recommend a voluntary code of
best practices. The committee was driven by the conviction that good corporate
governance was essential for Indian companies to access domestic as well as global
capital at competitive rates. The first draft of the code was prepared by April 1997, and
the final document (Desirable Corporate Governance: A Code), was publicly released in
April 1998. The code was voluntary, contained detailed provisions, and focused on listed
companies. Those listed companies should give data on high and low monthly averages
of share prices in a major stock exchange where the company is listed; greater detail on
business segments, up to 10% of turnover, giving share in sales revenue, review of
operations, analysis of markets and future prospects. Major Indian stock exchanges
should gradually insist upon a corporate governance compliance certificate, signed by
the CEO and the CFO. If any company goes to more than one credit rating agency, then
it must divulge in the prospectus and issue document the rating of all the agencies that
did such an exercise. These must be given in a tabular format that shows where the
company stands relative to higher and lower ranking.
2. Kumar Mangalam Birla committee report and Clause 49: While the CII code was
well-received and some progressive companies adopted it, it was felt that under Indian
conditions, a statutory rather than a voluntary code would be more purposeful, and
meaningful. Consequently, the second major corporate governance initiative in the
country was undertaken by SEBI. In early 1999, it set up a committee under Kumar
Mangalam Birla to promote and raise the standards of good corporate governance. In
early 2000, the SEBI had accepted and ratified key recommendations of this committee,
and these were incorporated into Clause 49 of the Listing Agreement of the Stock
Exchanges. The committee has identified the three key constituents of corporate
governance as the Shareholders, the Board of Directors and the Management. Along
with this the committee has identified major 3 aspects namely accountability,
transparency and equality of treatment for all shareholders. Crucial to good corporate
governance are the existence and enforceability of regulations relating to insider
information and insider trading. Corporate Governance has several claimants –
shareholders, suppliers, customers, creditors, the bankers, employees of company and
society. The committee for SEBI keeping view has prepared primarily the interests of a
particular classes of stakeholders namely the shareholders this report on corporate
governance. It means enhancement of shareholder value keeping in view the interests of
the other stack holders. Committee has recommended CG as company„s principles
rather than just act. The company should treat corporate governance as way of life rather
than code.
3. Naresh Chandra Committee Report: The Naresh Chandra committee was appointed in
August 2002 by the Department of Company Affairs (DCA) under the Ministry of
Finance and Company Affairs to examine various corporate governance issues. The
Committee submitted its report in December 2002. It made recommendations in two key
aspects of Corporate Governance: financial and nonfinancial disclosures: and
independent auditing and board oversight of management.
4. Narayana Murthy Committee report on Corporate Governance: The fourth initiative
on corporate governance in India is in the form of the recommendations of the Narayana
Murthy committee. The committee was set up by SEBI, under the chairmanship of Mr.
N. R. Narayana Murthy, to review Clause 49, and suggest measures to improve
corporate governance standards. Some of the major recommendations of the committee
primarily related to audit committees, audit reports, independent directors, related party
transactions, risk management, directorships and director compensation, codes of
conduct and financial disclosures.
5. Confederation of Indian Industry (CII) Taskforce on Corporate Governance: History
tells us that even the best standards cannot prevent instances of major corporate
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www.ijcrt.org © 2023 IJCRT | Volume 11, Issue 3 March 2023 | ISSN: 2320-2882
misconduct. This has been true in the US - Enron, WorldCom, Tyco and, more recently
gross miss-selling of collateralized debt obligations; in the UK; in France; in Germany;
in Italy; in Japan; in South Korea; and many other OECD nations. The Satyam-Maytas
Infra-Maytas Properties scandal that has rocked India since 16th December 2008 is
another example of a massive fraud.
6. Corporate Governance voluntary guidelines 2009: More recently, in December
2009, the Ministry of Corporate Affairs (MCA) published a new set of ―Corporate
Governance Voluntary Guidelines 2009, designed to encourage companies to adopt
better practices in the running of boards and board committees, the appointment and
rotation of external auditors, and creating a whistle blowing mechanism. The guidelines
are divided into the following six parts: i) Board of Directors, ii) Responsibility of
Board, iii) Audit Committee, iv) Auditors, v) Secretarial Audit vi) Whistle Blowing
mechanism
LITERATURE REVIEW
1. (Levine 2004; Adams and Mehran 2012; Liang et al., 2013; Yermack 1996; Eisenberg et
al., 1998; Pathan, 2009) provide support by showing that firms with small boards have
better financial performance. However, other researchers (Adams and Mehran 2012; Malik
et al., 2014) argue that larger boards improve firm performances by facilitating manager
supervision. Fu a nd Heffernan (2009) study the relationship between market structure and
performance in China’s banking structure for the period 1985 to 2002 and find that the
private sector banks have higher efficiency and better profitability than the public sector
banks.
2. Pathan (2009) examine a sample of 212 large US bank holding companies from 1997 to
2004 and finds that small, less restrictive boards positively affect bank risk-taking. Nguyen
and Nielsen (2010) observe that the stock price drops following the sudden death of
independent directors. Rowe et al. (2011) use a sample of 41 banks and examines the
impact of board size, percentage of shares held by the directors, percentage of executive
directors and independent directors, on Chinese’s bank performance. They find that the
percentage of executive directors in the boards has a significantly negative impact and the
percentage of shares owned by the board has a significantly positive impact on bank
performance.
3. Adams and Mehran (2012) use a sample of 35 publicly traded in US for the period 1986 to
1999 and investigate the relationship between board governance and its performance. The
study finds that board size is positively correlated with performance. Francis et al. (2012)
find that a board with strong independent directors shows positive and significant
relationship with firm performance.
4. (Shleifer & Vishny, 1997, p. 773); whereas Franco-German model is characterized with
relatively high concentration of ownership and takes into account the interests of not only
shareholders but also stakeholders (Gup, 2007). Gupta, P. (2008)., Corporate Governance in
Indian Banking Sector, the research examines the practices of corporate governance
attributes in banking sector and how they adhere to corporate governance practices. The
results of this research indicate the practice of corporate governance is at nascent stage
although corporate governance practices by Indian Banking Sector are more than a decade.
However, hope is looming large for the proper implementation of corporate governance
principles in Indian Banking Sector.
5. Benton, George (1999). Regulating Financial Markets: A Critique and Some Proposals.
Washington, D.C:. American Enterprise institute. between insiders and outsiders in banking
make it even more difficult for diffused equity and debt holders to keep a vigil on bank
managers. (b) As stated earlier, Government too plays a key role in corporate Governance
by creating the legal framework and exercising the same (especially in case of private sector
banks). Apart from creating an atmosphere of legal barriers the Government may directly
influence corporate governance. On one hand, the Government owns a firm, so that it is
liable for monitoring the managerial decisions and limiting the ability of managers to
maximise private benefits at the cost of the society. On the other hand, Government
regulates corporations.
6. Dalton et al. (1999) conducted a meta-analysis of 131 studies and concluded that there
exists a nonzero positive relationship between board size and corporate performance.
Boards of directors in banks and their effectiveness have received only a limited attention.
One of the reasons that may be behind this is because of the difference in regulation and
control. Hence our study raises another question that whether board effect is industry
specific. Banking sector constitutes a crucial component of any economy. It acts as the most
important intermediary for channalising resources from ultimate lenders to final borrowers.
7. John and Senbet, (1998). These studies have focused on three board attributes: board size,
board leadership and board composition. Chagnanati et al. (1985) argues that board size is a
significant board attribute and affects board functions and eventually corporate
performance. Jensen (1993) and Lipton and Lorsch (1992) asserted that large boards could
be less effective than small boards. Increase in board’s size, occurs with increase in agency
problems (such as director free-riding) within the board and the board becomes less
effective. Jensen (1993) also supported the theory of Lorsch (1992) and further added that
the decision-making power of the board becomes slower with the involvement of more
people. Eisenberg et al. (1998) documented a similar pattern for a sample of small and
midsize Finnish firms. Their study also revealed that board size and firm value are
negatively correlated.
8. (Eldomiaty and Choi, 2003). In a developing economy such as India, the growth of efficient
corporate governance principles in banks has been partly held back due to weak legal
protection, poor disclosure prerequisites and overriding owners (Arun and Turner, 2002a).
Moreover, the private banking sector is purposely opting to ignore certain corporate
governance ethics as it has vested interest of some parties
1. To know the relationship between Board Size of the banks and its Financial
performance.
2. To know the relationship between Board Meetings Held in a year by banks and its
financial performance.
3. To know the relationship between CSR Spendings done by the company in a
particular year and the financial performance of the bank.
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www.ijcrt.org © 2023 IJCRT | Volume 11, Issue 3 March 2023 | ISSN: 2320-2882
DATA COLLECTION
Data has been collected from the Annual Reports of the Banks through their official Websites,
Money Control and Company Check websites. The Study for the period of 5 years i.e.. from
2018-2022.The data has been analysed by using the simple linear regression model
Board Size
Public Sector
Bank Name 2022 2021 2020 2019 2018 Average
State Bank Of India 16 19 18 16 17 17
Punjab National Bank 15 11 16 14 14 14
Private Sector
Axis Bank 19 18 18 19 18 18
Kotak Mahindra Bank 14 17 15 13 14 15
Table :1 Shows the Board size i.e.. no of directors in the board yearwise the maximum and
minimum no of directors in public sector bank 1. State Bank of India is 19 is maximum in the
year 2019 minimum is 16 in the year 2019. Punjab National Bank 16 in the year
2020.Similarly in private sector bank the maximum and minimum respectively number of
directors 1 AXIS Bank 19 is the in the year 20190and 2022, 2 Kotak Mahindra Bank 17 in the
year 2021 and minimum is 13 in the year 2019.
Board Meetings
Public Sector
Bank Name 2022 2021 2020 2019 2018 Average
State Bank Of India 1 5 7 6 7 5
Punjab National Bank 1 7 6 8 7 6
Private Sector
Axis Bank 1 4 5 7 5 4
Kotak Mahindra Bank 1 5 6 5 5 4
Table :2 The table shows the number of Board Meetings held by the Banks –public sector
banks SBI max is 7 in 2018 and 1 in 2022, PNB Max is 8 in 2019 , min is 1 in 2022. Private
Sector –AXIS Bnak max is 7in 2019 and min is 1 in 2022,Kotak Mahindra Bank max is 6 in
2020 and 1 in 2022.
Table :3 shows the Debt Equity ratio of all the four banks in which SBI – 1.51 and 2.05 min
and max respectively, PNB 0.51 to 0.95 min and max respectively. In private sector Axis
Banks 1.41 and 2.29 ,in Kotak Mahindra Bank 0.37 and 0.79 min and max respectively
Liquidity Ratio
Public Sector
Bank Name 2022 2021 2020 2019 2018 Average
State Bank Of India 3.51 4 3.53 4.28 3.53 3.7700
Punjab National Bank 8.52 7.97 5.27 5.87 4.65 6.4560
Private Sector
Axis Bank 3.01 2.35 3.42 3.02 2.6 2.8800
Kotak Mahindra Bank 1.96 2.2 2.12 1.87 2.31 2.0920
Table :4 shows the Liquidity ratio of all the four banks for 2022 PNB’s 8.52 and in private
sector Axis Bank 3.01 in the year 2022.minimun is 3.53 in 2022 and SBI , in private sector
1.87 in the year 2019Table : 5 CSR Spendings by banks yearwise
Table :5 Section 135 of the Act, Companies ( Corporate Social Responsibility Policy) Rules,
2014 The Board shall ensure that the company spends, in every financial year , atleast 2% of
the average net profits of the company made during the three immediately preceding financial
years, in pursuance of its Corporate Social Responsibility Policy. The above table shows the
spendings made by all the four banks yearwise .hence both public sector and Private Sector
banks have followed the statutory regulations of the Comapanies Act 2013
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