becg.l-10a.cg committees (contd)

7/27/2019 BECG.l-10A.cg Committees (Contd)

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Dr. A.S. Ganguly Committee(Lesson-10A: BECG)

Prof. C. Anand

Faculty IBS, Hyderabad


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Contents

This deals with:-

1. Constitution and Set Up of the Committees

2. Objectives of the Committee

3. Recommendations of the Committee:

a. Board of Directors (Constitution, Composition,Independent/Non-Executive Directors, Commonality of

Directors of Banks/NBFCs, Responsibilities, Training

and Remuneration of Directors.

b. Other Issues (Information Flow to/from the Board,Company Secretary, Committees of the Board,

Disclosure & Transparency, and Review of

Implementation)


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1. Constitution & Set Up of the Committee

The Consultative Group of Directors of Banks andFinancial Institutions(FIs) was set up by RBI, under theChairmanship of Dr. A.S. Ganguly, to review theSupervisory Role of Boards of Banks/FIs and to obtainfeedback on the functioning of the Boards vis--visCompliance, Transparency, Disclosures, AuditCommittees, etc. and to make recommendations formaking the role of Boards more effective with a view tominimizing risks and over-exposure.


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3. Recommendations of the Committee

A. Board of Directors:

(i) Constitution of the Board: The Boards of Banks/Fisare collectively responsible to the depositors and other

Stake-holders. The Board delegates the powers to

Chairman, MD, EDs, who will be individually

responsible. Boards are supposed to shape strategy and

monitor performance without involving in the day-to-day

affairs. Generally, Banks and FIs shall help the Whole-

time Director (CMD and ED) and large-sized

nationalized banks will have one more WTD to provide

undivided attention to critical areas (RM,HR, etc). Thecommittee recommended that the competence of

individual directors be addressed in terms of

qualifications, experience and track record and their

integrity. A pool of such directors be built up.


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3. Recommendations of the Committee (contd)

(ii) Composition of the Board: The Boards of Banks/Fis shallhave representation in the areas of Finance, IT, HR,Economics and experience in managing/advisingindustrial enterprises.

(iii) Independent/Non-Executive Directors: The committeerecommended the following critical questions to be raisedby Ind./Non-Executive Directors in the Board Meetings:Business Strategy including loans and recovery, house-keeping and internal control systems, loan exposures to

different sectors/industries, Risk Management system,Internal Audit, Accounting Policy, Senior ManagementDevelopment, Investor relations, etc.


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(iv) Commonality of Directors of Banks/Fis: A director on the

board of a NBFC could be considered if he/she is (i) Not

owner of NBFC, (ii) Not related to the promoter of NBFC

and (iii) Not a full-time employee of NBFC.

(v) Responsibilities of Directors: The major roles and

responsibilities are: (i) Overseeing risk profiles of a co.;

(ii) Monitoring integrity of business and controlmechanism; (iii) Ensuring that expert management is in

place; and (iv) Maximizing the interests of shareholders.

Responsibilities to ensure compliance with regulatory

framework & social responsibilities include:1. Delegationof various authorities of Board; 2. Strategic Plan of the

Bank; 3. Organization Structure; 4. Economic features of

market and competitive environment; 5. Financial controls

and systems; 6. Meeting with key management team.


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(vi). Training to Directors: Directors should be exposed toneed based training through training sessions, seminars,

workshops etc. to acquaint with emergingdevelopments/challenges being faced by the Bankingsector. RBI should take initiative in this regard.

(vii) Remuneration to Directors: It should be sitting fees plusbasic salary, performance bonus, and Options (ESOPS)

to the directors commensurate with time devoted.

B. Other Issues:

(i) Prohibition flowing from Sec.20 of B.R. Act, 1949: There isstatutory prohibition under above act to restrict grant of

loan to a company in which one or more of the directorsof the bank are interested. But such restrictions are notthere internationally if there are full disclosures by theinterested directors and appropriate covenants areimposed by the banks. Committee recommends that we

may move towards that goal.


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(ii) Information Flow to/from the Board: The effectiveness of

the Boards largely depends upon flow of informationto/from the Board. The information furnished to the Board

shall be adequate and complete for taking meaningful

decisions. The observations, dissents made shall be

recorded and brought out in proceedings forimplementation.

(iii). Company Secretary: Banks should appoint a qualified

company secretary as the Secretary to the Board and a

compliance officer to ensure compliance with regulatory

and accounting requirements.


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(iv) Committees of the board:

a. Supervisory Committee: It will work on collective trustwithout diluting the overall responsibility of the Board

and monitors the credit and investment exposures of

Banks and reviews adequacy of risk management

process, internal control systems and ensures compliance

with statutory/regulatory framework.

b. Audit Committee of the Board. It looks into accounting

role and overall management audit and will have a

Chairman (Need not be CA) and majority of

independent/Non-EDs with one of the Eds as one of themembers.


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c. Nomination Committee: It is for appointing independent /Non-EDs of Banks to scrutinize nominations with

reference to their qualifications, experience, etc. PublicSector Banks issuing public issue should have thiscommittees.

d. Shareholders Redressal Committee: The matters

relating toinvestors

andshareholders

complaints andgrievances may be looked into at this higher level to buildup credibility.

e. Risk Management Committee: This committee isrequired to be set up as per the Risk Management

guidelines issued by RBI for mitigating Credit and MarketRisk, besides mitigating risk arising from exposure tointer-connected entities.


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(v) Disclosure and Transparency: The Committee

recommends that the following disclosures be made by

Banks to Boards at regular intervals:- (i) Progress madein risk management system, risk management policy and

strategy followed by the Bank (ii) Exposure to related

entities viz. details of lending to/investments in

subsidiaries, the asset classification of such lendings /

investments. (iii) Conformity with CG standards

structure, various committees, etc.

(vi) Review of Implementation: For the implementation of the

recommendations of Ganguly Committee, the banks

should be asked to come up with a strategy. Once the

strategy is received from all Banks, progress of

implementation could be reviewed after 12 months;

there-after it could be reviewed half-yearly. *The End*

becg.l-10a.cg committees (contd)

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