ganguly committee

8/13/2019 Ganguly Committee

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Ganguly Committee:

Executive Summary:

1. The Consultative Group of Directors of banks and financial institutions was set up by theReserve Bank to review the supervisory role of Boards of banks and financial institutions and toobtain feedback on the functioning of the Boards vis--vis co!pliance" transparency" disclosures"audit co!!ittees etc. and !ake reco!!endations for !aking the role of Board of Directors !oreeffective with a view to !ini!i#ing risks and over-e$posure.

%. The Group has produced a list of reco!!endations after a co!prehensive review of thee$isting legal fra!ework governing constitution of the Boards of banks and financial institutions"interaction with various interested groups" organisations" etc. and bench!arked itsreco!!endations with international best practices as enunciated by the Basel Co!!ittee onBanking &upervision" as well as of other co!!ittees and advisory bodies" to the e$tent applicablein the 'ndian environ!ent.

Recommendations of the Group:

(. Due diligence of the directors of all banks - be they in public or private sector" should be donein regard to their suitability for the post by way of )ualifications and technical e$pertise.'nvolve!ent of *o!ination Co!!ittee of the Board in such an e$ercise should be seriouslyconsidered as a for!al process.

+. The Govern!ent while no!inating directors on the Boards of public sector banks should beguided by certain broad ,fit and proper, nor!s for the Directors. The criteria suggested by the B'&!ay be suitably adopted for considering fit and proper, test for bank directors.

. /or assessing integrity and suitability" factors such as cri!inal records" financial position" civilactions undertaken to pursue personal debts" refusal of ad!ission to" or e$pulsion fro!professional bodies" sanctions applied by regulators or si!ilar bodies" and previous )uestionablebusiness practices" etc. should be considered.

0. The appoint!ent no!ination of independent non-e$ecutive directors to the Boards of banks2both public sector and private sector3 should be fro! a pool of professional and talented peopleto be prepared and !aintained by Reserve Bank of 'ndia. 4ny deviation fro! this procedure byany bank should be with the prior approval of RB'.

5. 'n the present conte$t of banking beco!ing !ore co!ple$ and knowledge-based" there is anurgent need for !aking the Boards of banks !ore conte!porarily professional by inductingtechnical and specially )ualified individuals.

6. 7hile continuing regulation based representation of sectors like agriculture" &&'" cooperation"etc" efforts should be ai!ed at co!bining it with the need-based representation of skills such as!arketing" technology 8 syste!s" risk !anage!ent" strategic planning" treasury operations"credit recovery" etc." /urther" the Boards of banks should also have representation in the areassuch as finance" infor!ation technology" hu!an resources develop!ent" econo!ics and personswith good track record of e$perience in !anaging advising industrial enterprises.


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9. The independent non-e$ecutive directors should raise in the !eetings of the Board" critical)uestions relating to business strategy" including loans 8 recovery policy" housekeeping andinternal control syste!s" record of e$posure to various sectors industries by way of both creditand invest!ent" risk !anage!ent syste!s" internal audit" accounting policy" senior !anage!entdevelop!ent" other i!portant aspects of the functioning of the bank and investor relations. Thegood corporate governance in banks will be sustained by a knowledgeable" skillful and wellinfor!ed Board of Directors with a proper blend of e$pertise professionalis!" independence andinvolve!ent.

1:. 'n the case of private sector banks where pro!oter directors !ay act in concert" theindependent non-e$ecutive directors should provide effective checks and balances ensuring thatthe bank does not build up e$posures to entities connected with the pro!oters or theirassociates. The independent non-e$ecutive directors should provide effective checks andbalances particularly" in widely held and closely controlled baking organisations.

11. Directors on the boards of *B/Cs !ay be per!itted to beco!e 'ndependent non-e$ecutivedirectors on the boards of banks" sub;ect to certain conditions.

1%. anaging Director in respect oflarge si#ed public sector banks. This functional separation will bring about !ore focus on strategy


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and vision as also the needed thrust in the operational functioning of the top !anage!ent of thebank.

%:. The statutory prohibition under section %: of the Banking Regulation 4ct" 19+9 on lending toco!panies in which the director is interested" severely constricts availability of )ualityprofessional directors on to the Boards of banks. 'nternationally" however" banks are per!itted to

e$tend credit facilities to co!panies in which the directors are interested sub;ect to full disclosureand appropriate covenants. This would re)uire a change in the e$isting legal fra!ework. 7eneed to !ove towards this goal.

%1. The infor!ation furnished to the Board should be wholeso!e" co!plete and ade)uate to take!eaningful decisions. 4 distinction needs to be !ade between statutory ite!s and strategicissues in order to !ake the !aterial for directors !anageable. The !anner in which the Boardproceedings are recorded and followed up in public sector banks leaves !uch scope fori!prove!ent. The Reviews dealing with various perfor!ance areas could be put up to the&upervisory Co!!ittee of Board and a su!!ary of each such review could be put up to the >ainBoard. The Boards focus should be devoted !ore on strategy issues" risk profile" internal controlsyste!s" overall perfor!ance of the bank" etc.

%%. The procedure followed for recording of the !inutes of the board !eetings in banks andfinancial institutions should be unifor! and for!alised. Banks and financial institutions !ay adopttwo !ethods for recording the proceedings vi#." a su!!ary of key observations and a !oredetailed recording of the proceedings. 'n every !eeting" the board should review the status of theaction taken on the points arising fro! earlier !eetings and till action is co!pleted to itssatisfaction? the pending ite!s should continue to be put up before the board.

%(. 't would be desirable if the e$posures of a bank to stockbrokers and !arket-!akers as agroup" as also e$posures to other sensitive sectors" vi#." real estate etc. are reported to the Boardregularly. The disclosures in respect of the progress !ade in putting in place a progressive risk!anage!ent syste!" the risk !anage!ent policy" strategy followed by the bank" e$posures torelated entities" the asset classification of such lendings invest!ents etc. confor!ity withCorporate Governance &tandards etc." be !ade by banks to the Board of Directors at regular

intervals as prescribed.

%+. 4ll banks should consider appointing )ualified Co!pany &ecretary as the &ecretary to theBoard and have a Co!pliance @fficer 2reporting to the &ecretary3 for !onitoring and reportingco!pliance with various regulatory accounting re)uire!ents.

%. There could be a &upervisory Co!!ittee of the Board in all banks" be they public or privatesector" which will work on collective trust and at the sa!e ti!e" without diluting the overallresponsibility of the Board. Their role and responsibilities could include !onitoring of thee$posures 2credit and invest!ent3 review of the ade)uacy of risk !anage!ent process 8upgradation thereof" internal control syste!s and ensuring co!pliance with the statutory regulatory fra!ework.

%0. The 4udit Co!!ittee should" ideally be constituted with independent non-e$ecutive directorsand the


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%6. 't is desirable to have a *o!ination Co!!ittee for appointing independent non-e$ecutivedirectors of banks. 'n the conte$t of a nu!ber of public sector banks issuing capital to the public"a *o!ination Co!!ittee of the Board !ay be for!ed for no!ination of directors. representingshareholders.

%9. 7ith a view to building up credibility a!ong the investor class" the Group sreco!!ends that a

Co!!ittee of the Board !ay be set up to look into the grievances of investors and shareholders"with the Co!pany &ecretary as a nodal point.

(:. The for!ation and operationalisation of the Risk >anage!ent Co!!ittees in pursuance ofthe guidelines issued by the RB' should be speeded up and their role further strengthened.

(1. The banks could be asked to co!e up with a strategy and plan for i!ple!entation of thegovernance standards reco!!ended and sub!it progress of i!ple!entation" for review aftertwelve !onths and thereafter half yearly or annually" as dee!ed appropriate.

Chapter 1 - Introduction Bacground

1.1. The recent develop!ents provide a!ple evidence that inade)uate corporate governancestandards in certain banks and financial institutions could contribute to their financial fragility. Thedevelop!ents in the &outh -


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2b3 To study the syste! prevalent in banks financial institutions for !onitoring by theBoard" the i!ple!entation of the policies laid down by it.

2c3 To !ake reco!!endations for !aking the role of Board of Directors !ore effectivewith a view to !ini!ising risks and over-e$posure.

2d3 4ny other !atter relevant to the sub;ect.

The details of the constitution of the Group are furnished in 4nne$ure 1.

Chapter ! - "#servations and Recommendations of the Group

Board of $irectors

Constitution of the Board

+.1. The Board of Directors has i!portant fiduciary responsibilities to the shareholders of theco!pany. The Board is responsible for the overall !anage!ent and effective functioning of the

bank. The banks" being a corporate entity" the Board of a bank is responsible to the shareholders.

/urther" banks being i!portant participants in the pay!ent syste!s" it is en;oined upon theBoards to safeguard the interests of the depositors and other stakeholders. The Board" however"cannot be e$pected to supervise the day-to-day operations of the bank and it" therefore"delegates and entrusts appropriate authority to the various functionaries" via the whole -ti!edirectors of the Board such as" Chair!an" >anaging Director and e!ber of arlia!ent >e!ber of Eegislative

4sse!bly>e!ber of Eegislative Council

The Group is of the view that the above criteria needs to be revised in view of challenges facingthe banking sector.


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+.. resently" the due diligence is done" to a li!ited e$tent" by the Reserve Bank of 'ndia for thecandidates considered for independent non-e$ecutive directorship in public sector banks. Thedue diligence by RB' is" however" confined to verifying whether the na!es forwarded by theGovern!ent of 'ndia figure in the Defaulters Eist or not. This due diligence process does notassess either the ability" professional )ualification or the technical co!petence of the candidatesbeing considered for directorship to fulfil the fiduciary responsibilities e$pected of the!.

+.0. 'n the case of independent non-e$ecutive directors of private sector banks" since they areappointed by the Board" the due diligence e$ercise is not done by RB'. &uch directors areappointed by the Board keeping in view the re)uire!ent of giving representation to the specifiedsectors" as enshrined in the Banking Regulation 4ct" 19+9.

+.5. The Group reco!!ends that the criteria followed by the Govern!ent of 'ndia for no!inatingdirectors to the Boards of public sector banks and the due diligence followed for the! should be!ade applicable to independent non-e$ecutive directors of other banks as well.

+.6. The Group is of the view that due diligence of the directors of all banks -be they in publicsector or private sector should be done in regard to their suitability for the post by way of)ualifications and technical e$pertise. The Group strongly feels that involve!ent of *o!ination

Co!!ittee of the Board in such an e$ercise should be seriously considered as a for!al process.The final decision in respect of appoint!ent of independent non-e$ecutive directors should bethat of the Board with the *o!ination Co!!ittee presenting its reco!!endations highlightingboth positive and negative aspects of each reco!!ended candidate" for consideration of theBoard.

+.9. 7hile the desirable international practice of the Board !e!bers being no!inated by the*o!ination Co!!ittee fro! a list of )ualified" e$perienced professionals would re)uirea!end!ents to the banking laws" the Group reco!!ends that the Govern!ent while no!inatingdirectors on the Boards of public sector banks should be guided by certain broad ,fit and proper,nor!s for the directors. The Group reco!!ends the criteria suggested by the B'& to consider fitand proper, for bank directors

Co!petence of the individual directors as assessed in ter!s of for!al )ualifications"previous e$perience and track record.

'ntegrity of the candidates.

/or assessing integrity and suitability" the features like cri!inal records" financial position" civilactions undertaken to pursue personal debts" refusal of ad!ission to" or e$pulsion fro!professional bodies" sanctions applied by regulators or si!ilar bodies" and previous )uestionablebusiness practices" etc. should be considered. 2cf" "Supervision of Financial Conglomerates",1996" BCB&3. The Group reco!!ends that these criteria should also be !ade applicable tono!ination of independent directors of private sector banks.

+.1:.The Group reco!!ends that a pool of professional and talented people should be built upfor consideration of no!ination as independent non-e$ecutive directors to the Board of banksand financial institutions. The list of such eligible directors should be asse!bled by RB' fro!independent sources after proper due diligence and such a list should be put on the RB'=swebsite for access by all concerned. The Group is of the view that appoint!ent no!ination ofindependent non-e$ecutive directors to the Boards of banks 2both public sector and privatesector3 should be fro! this list. 4ny deviation fro! this procedure by any bank" according to theGroup" should be with the prior approval of RB'. RB' !ay also establish procedures for regularlyupdating the list through additions and deletions fro! ti!e to ti!e.

Composition of the Board


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+.11.The Group e$a!ined the structure and the co!position of the Boards of banks. 't is notedthat co!position of the Boards of banks is !ore regulation-based rather than need-based. 4snoted in paragraph %.% above" as per the regulation applicable to banks" the Board of Directors ofa bank is re)uired to have representation fro! specific sectors like agriculture and rural econo!y"co-operation" &&'" law" etc." The Group is of the view that in the conte$t of banking beco!ing!ore co!ple$ and co!petitive" the co!position of the Board should be left to the business needsof banks. Co!position of the Board 2by way of representation of various sectors3 should be so asto reflect the business strategy and its vision for the future.

+.1%.The Group is of the view that in the present conte$t when banking is beco!ing !oreco!ple$ and knowledge-based" there is an urgent need for !aking the Boards of banks !oreconte!porarily professional" by inducting technical and specially )ualified personnel. The earlierre)uire!ent of ensuring representation on the Boards of banks for areas like agricultural sector"law" co-operation" s!all-scale industry" etc. which were relevant in the i!!ediate post-nationalisation era" in the Groups view" have now to be supple!ented by other e!ergingpriorities. The Group feels that instead of atte!pting to wholly change sectoral representation"efforts should be ai!ed at bringing about a blend of %historical sills& set 2that is" regulation-based representation of sectors like agriculture" &&'" co-operation" etc.3 and the ne' sills& set2that is" need-based representation of skills such as" !arketing" technology and syste!s" risk!anage!ent" strategic planning" treasury operations" credit recovery" etc.3.

+.1(.'t was recognised that agriculture still contributes a significant share of GD andrepresentation to agriculture and &&'" etc." sectors have to be continued. 7ith increased de-regulation and the structural changes that have taken place in the econo!y and in the bankingsector" the Group is of the view that the Boards of banks should have representation in thefollowing areas

/inance

'nfor!ation Technology

Au!an Resources Develop!ent

ersons with good track record of e$perience in !anaging advising industrial

enterprises


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house keeping and internal control syste!"

record of e$posure to various sectors industries by way of both credit and invest!ents"

etc.

risk !anage!ent syste!s"

internal audit"

accounting policy"

senior !anage!ent develop!ent" other aspects of the functioning of the bank" and

investor relations.

The independent non -e$ecutive directors need to ensure that the vital issues raised by the!are addressed by the bank to the full satisfaction of the Board. 7hile !aking the abovereco!!endations" the Group is guided by the fact that good corporate governance in banks willbe sustained by a knowledgeable" skilful and well infor!ed Board of Directors with a correctblend of e$pertise professionalis!" independence and involve!ent.

+.1. 'n the case of private sector banks where pro!oter directors !ay act in concert" theindependent non-e$ecutive directors should provide effective checks and balances ensuring that

the bank does not build up e$posures to entities connected with the pro!oters or theirassociates. They should also seek through the Board" all infor!ation relating to critical areas likeconnected lending" invest!ents" e$posure to entities associates related to the pro!oters largeshareholders. The independent non-e$ecutive directors should provide effective checks andbalances" particularly" in widely held and closely controlled banking organisations.

Commonality of directors of #ans and )B*Cs

+.10. 'n regard to the e$isting regulatory prohibition on directors of *B/Cs beco!ing independent non-e$ecutive directors on the boards of banks" the Group is of the view that it would not beproper to debar a professional director on the board of an *B/C fro! beco!ing a director on theboard of a bank. 't needs to be noted that as per the e$isting policy" *B/Cs satisfying certaincriteria 2such as" 444 rating" !ini!u! net worth of Rs. %:: crore" CR4R of not less than 1%F"

net *4 not !ore than F" etc.3 are allowed to be converted to a bank. 'n view of the abovepolicy stance" the Group feels that it would not be fair to debar directors on the boards of *B/Csbeco!ing independent non-e$ecutive directors on the boards of banks. 'n order to avoid anylikely conflict of interest" the Group reco!!ends that a director on the board of a *B/C could beconsidered for appoint!ent as director on the board of a bank if -

2i3 Aeshe is not the owner of the *B/C" i.e." holdings 2single or ;ointly with relatives" associates"etc. 3 e$ceeding :FH or

2ii3 Aeshe is not related to the pro!oter of the *B/C" or

2iii3 Aeshe is not full-ti!e e!ployee in the *B/C.

'n regard to full-ti!e e!ployees of *B/Cs" the Group feels that the Reserve Bank of 'ndia as theregulator" should have the discretion for considering such person for directorship in a bank"keeping in view the specific circu!stances" !erits " etc. of each case.

Responsi#ilities of directors

+.15. 4 strong corporate board perfor!s four !a;or roles over-seeing the risk profile of aco!pany" !onitoring the integrity of its business and control !echanis!s" ensuring that e$pert!anage!ent is in place and !a$i!ising the interests of its stakeholders. &uch board has regular


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and close contact with the organisation and can detect and correct any abnor!al behaviour)uickly. &uch a board is also able to play a crucial role in hiring and retaining sound !anagers.The Group is of the view that banks being pivotal for the countrys financial syste!" the boards ofbanks should fulfil all these four roles.

+.16. The Board of Directors of banks and financial institutions have" besides fiduciary

obligations" as above" i!portant social responsibilities" and the responsibilities to ensureco!pliance with the regulatory fra!ework.

These would include co!pliance with the directions policy of the Govern!ent etc. 'n theirfiduciary capacity" the Boards of directors should receive regular reports fro! their !anage!entco!!ittees" auditors and audit co!!ittee" for!ulate clear written policies in regard to variousbusiness strategies and policies 2credit" invest!ents" etc.3" perfor!ance para!eters for the bankand ensure that the bank=s affairs are conducted in accordance with the stated policies regulatory re)uire!ents. The Board should for!ulate policies relating to credit dispensationparticularly in regard to e$posures to various productive sectors" geographical areas"invest!ents" e$posures to sensitive sectors such as capital !arket" strategies for recovery ofloans and status of progress with respect to invest!ents" risk !anage!ent" etc.

+.19. The need for clear lines of responsibilities in any organisation cannot be overe!phasised.'n the case of banks" the Group notes that the responsibilities are well defined for the !anagerialfunctionaries.

owers are delegated to the various functionaries of the bank for sanctioning of loans andadvances" invest!ents" incurring authorised level of e$penditure" etc. The !anagerialfunctionaries are also !ade accountable and their perfor!ance is !onitored vis--vis theperfor!ance targets agreed to by the Board" ;udicious e$ercise of discretionary powers" etc.

+.%:. The Group reco!!ends that every director should be given a brief on the functioning of thebank" before his appoint!ent induction" covering the following

Delegation of various authorities by the Board

&trategic lan of the bank

@rganisational &tructure

/inancial and other controls and syste!s


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The director is e$pected to regularly attend board !eetings and take an active part in its

deliberations.

>e!bers of the Board do not e$ercise any e$ecutive authority individually" but are

collectively responsible for the

superintendence" direction and !anage!ent of the bank.

7hile directors can delegate certain powers to any co!!ittees" e$ecutives or otherofficers" they cannot absolve the!selves of

their responsibility of ensuring that the bank operates on sound

and prudent lines.

They are responsible for safeguarding the interests of the depositors and owners through

efficient and well infor!ed

ad!inistration of the bank.

Directors are e$pected to critically and thoroughly study agenda papers.

They should pay ade)uate attention to the state of non-perfor!ing assets" recovery

perfor!ance and write-off of large debts 2say Rs. 1 crore or !ore3.

Based on the !eetings attended by the!" the no!inee directors are re)uired to sub!it reports to

the Govern!ent 2in the case of its no!inees of the Boards of public sector banks3 and to ReserveBank of 'ndia 2in respect of its no!inees on the Boards of all banks3.

+.%(. resently" there is no !echanis! to !ake the directors on the Boards of banks andfinancial institutions accountable for the perfor!ance of their organisation. The Group is of theview that the lack of clearly docu!ented responsibility and accountability of directors on theBoard ste!s fro! the !anner in which the Board is constituted. 'n the case of public sectorbanks" !a;ority of the Board co!prises no!inees of the Central Govern!ent and the individualdirectors are" therefore" !ainly accountable to the political institution of the land. The Group is ofthe view that while a change in the !anner in which the Boards are constituted is essential inorder to !ake the Board and its individual !e!bers !ore accountable" this would necessitate achange in the statutes governing the banking sector. 4ccording to the Group" the role of C


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a!ong the private sector banks" guidelines on the role and functions of independent non-e$ecutive directors on the Boards of private sector banks. These guidelines were in the nature ofoperational guidelines bringing ho!e to the! the fact that the directors should not interfere inday-to-day affairs of the bank or otherwise intervene in credit invest!ent personnel otheroperational !atters. The guidelines highlight the need for the independent non-e$ecutivedirectors to take interest in the banks work concerning their own fields of specialisation activityand also deliberate on all !atters of general policy affecting the banks functioning. Theguidelines e$hort that every director should function in a !anner !ost conducive to the interestsof the depositors" of the shareholders and of the nation as a whole. The Reserve Bank of 'ndiahad also circulated in 199% a list of ,dos, and ,don=ts, to the private sector banks" with a view tosensitising the directors on their role and responsibilities. 4 si!ilar list had also been given by theGovern!ent to the directors of public sector banks. The Group reco!!ends that theseinstructions !ay be reviewed and updated where re)uired" and the roles and responsibilities ofindependent non-e$ecutive directors be clearly stated.

+.%5. Ieeping in view the recent develop!ents and the changes witnessed in the banksoperations" as also the technical develop!ents" the Group suggests that Reserve Bank !aybring out an updated charter indicating clear-cut" specific guidelines on the role e$pected and theresponsibilities of the individual directors. The responsibilities of the directors according to theGroup" should illustratively include the following

Deliberating and approving the ob;ectives" business strategies and annual business plans

Deliberating and approving the !anage!ent succession policy of the institution" and

assessing senior !anage!ents perfor!ance on an on-going basis"

Clearly defining the authorities and responsibilities of both e$ecutive directors and

relevant senior !anage!ent"

Developing and providing a list of checks and balances for use by senior !anage!ent"

/or!ulating policies on vital areas of banks functioning 2vi#." loan and recovery policy"

invest!ent policy" risk !anage!ent policy" e$posure to sensitive sector including capital!arket" etc.3

Guidance on risk !anage!ent particularly invest!ent assess!ent" the fi$ation of risk

li!its" e$posure ceiling both individual and group J borrower ceilings" etc."

4pprove the policy on introduction of technology to the bank=s various facets of workingwith a view to provide better service in a !ost cost effective !anner as !easured bytargets of productivity and profitability

>aintaining and recording appropriate levels of checks and balances with regard to the

influence of the !anage!ent andor large shareholder2s3.

>onitoring on an on-going basis the bank=s perfor!ance" build up of e$posure to various

categories of borrowers" industries" sectors" etc against targets of the annual operatingplan.

Discussing the reports sub!itted by the 4udit Co!!ittee" !onitoring the follow up action

taken to rectify the deficiencies observed" etc.


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+.%9. The Group is of view that in consonance with transparency in regard to responsibility ofdirectors" an appropriate covenant should be obtained fro! each of the directors" whether theyare independent non-e$ecutive directors no!inees of Govern!ent RB' other institutionshaving si#able shareholding in banking organisations. The Group accordingly has devised acovenant for adoption by all the banks. 4 copy of the for!at is given in 4nne$ure(.

Remuneration to directors

+.(:. The Group is of the view that the e$isting level of re!uneration paid 2by way of sitting fees"etc.3 to directors of banks and financial institutions is grossly inade)uate" by conte!porarystandards" to attract )ualified professional people to their Boards" and e$pect the! to dischargetheir duties as per the !utually agreed covenants. 4 few of the banks /'s have !odified theirco!pensation plans to include a base salary" perfor!ance bonus and options to their directors. 'norder to get )uality professional people" the level of re!uneration payable to the directors shouldbe co!!ensurate with the ti!e re)uired to be devoted to the banks work and also to signal theappropriateness of re!uneration to the )uality of inputs e$pected fro! a !e!ber. There!uneration of the directors !ay also include the for! of stock option.

,rohi#itions flo'ing from Section . of the B/R/ 0ct 12!2

+.(1. The Group is of the view that the statutory prohibition under section %: of the BankingRegulation 4ct" 19+9 on lending to co!panies in which a director is interested" severely constrictsavailability of )uality professional directors on to the Boards of banks. The Group notes thatinternationally" however" banks are per!itted to e$tend credit facilities to co!panies in which thedirectors are interested sub;ect to full disclosure and appropriate covenants. The Group is awarethat any change in the e$isting legal fra!ework would re)uire an a!end!ent to the BankingRegulation 4ct.

The Group reco!!ends that we !ove towards that goal.

Information flo' to ( from the Board

+.(%. The Group notes that the effectiveness of the Boards largely depends upon the flow ofinfor!ation to and fro! the Board. The infor!ation furnished to the Board should be wholeso!eand co!plete and should be ade)uate to take !eaningful decisions. 4 distinction needs to be!ade between statutory ite!s and strategic issues in order to !ake the !aterial for directors!anageable=. 'n this conte$t" the Group reviewed the practices of banks and financial institutionsin regard to preparation of the agenda notes" recording of the proceedings of the !eeting of theBoard" follow up of various action points arising fro! the decision taken at the !eetings" etc. TheGroup noted that the !anner in which the proceedings are recorded and followed up in publicsector banks leave !uch scope for i!prove!ent.

+.((. 4n issue that was brought to the notice of the Group was the nu!ber of reviews put up tothe Board as per the Calendar of Reviews prescribed by the Reserve Bank of 'ndia. 't is waspointed out that the large nu!ber of reviews put up to the Board leaves little ti!e to the Board forfruitful discussions on future business strategies and policies. The Group reco!!ends that theReviews dealing with various perfor!ance areas could be put to the &upervisory Co!!ittee ofBoard and a su!!ary on each of the reviews could be put up to the >ain Board. The Boardsfocus should be !ore on strategy issues" risk profile" internal control syste!s" overallperfor!ance of the bank" etc.

+.(+. The Group is of the view that the procedure followed for recording of the !inutes of theBoard !eetings in banks and financial institutions should be unifor! and for!alised. The Groupwould suggest that banks and financial institutions !ay adopt two !ethods for recording the


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proceedings 4 su!!ary of key observations !ade which should be sub!itted to the ne$t Board!eeting and a !ore detailed recording of the proceedings which will clearly bring out theobservations" dissents" etc. !ade by the individual directors could be forwarded to the! for theirconfir!ation.

+.(. The Group is of the view that the draft !inutes of the !eeting should be forwarded to the

directors" preferably via the electronic !edia" within +6 hours of the !eeting and ratificationobtained fro! the directors within a definite ti!e fra!e. 'f a director fails to respond within theti!e specified" it should be taken that he she has no co!!ents to offer.

+.(0. 'n every Board !eeting" the Board should review the status of the action taken on the pointsarising fro! the earlier !eetings and till action is co!pleted to the satisfaction of the Board" anypending ite! should continue to be put up before the Board.

Company Secretary

+.(5. The Group noted that the public sector banks do not have a )ualified Co!pany &ecretaryon their rolls. 4 Co!pany &ecretary has i!portant fiduciary and Co!pany Eaw responsibilities.The Co!pany &ecretary is the nodal point for the Board to get feedback on the status of

co!pliance by the organisation in regard to provisions of the Co!pany Eaw" Eisting 4gree!ents"&


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+.+:. The Group notes that banks have set up as re)uired in ter!s of the RB' guidelines"independent 4udit Co!!ittees. The 4udit Co!!ittee co!prises a !a;ority of the independent non-e$ecutive directors with the


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$isclosure and +ransparency

+.+0. The Group notes that disclosure re)uire!ents for banks have been substantially enhancedin the recent period. Banks are now re)uired to disclose in the *otes on 4ccounts" e$posure tosensitive sectors as also e$posure to capital !arket by way of 2a3 direct invest!ent in shares anddebentures" 2b3 advances against shares and debentures and 2c3 guarantees issued on behalf of

stockbrokers. The Group suggests that it would be desirable if the e$posure of a bank tostockbrokers and !arket !akers as a group" as also e$posure to other sensitive sectors 2vi#."real estate3" e$posure to various sectors" etc. are reported to the Board regularly.

+.+5. The Group reco!!ends that the following disclosures be !ade by banks to the board ofdirectors at regular intervals as !ay be prescribed by the board fro! ti!e to ti!e

2i3 The progress !ade in putting in place a progressive risk !anage!ent syste!" the risk!anage!ent policy and strategy followed by the bank.

2ii3


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(&.L.&htra$aul) ('.%.Sriniasan) 'mbr

S*rtary.

ganguly committee

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