The requirements of the corporate governance framework differ across institutions because of the different ownership structures of the commercial banks.

• Public Sector banks are largely owned by the Government. The majority holding in State Bank of India is held by RBI and State Bank of India holds majority shareholding in its seven associate banks. (These holdings are gradually being divested).

• The old private sector banks have traditionally been owned and controlled by communities, groups or regional interests.

• The new private sector banks are owned and managed by financial institutions or major corporates though the shareholding pattern is increasingly diversified with fresh issues of capital as part of start up covenants.

• The foreign banks are in essence branches of overseas entities though a Local Advisory Board provides general guidance.

• Even amongst financial institutions, there are both state owned and private sector entities.

The corporate governance framework in these institutions has been strengthened through regulation, supervision and through interaction with the management of these institutions. These measures cover responsibilities of the boards of banks, disclosure and transparency in published accounts, and shareholder and stakeholder rights and controls.

The rating on management (M) which has been introduced as part of the CAMELS supervisory process takes into account the working of the board and its committees including the Audit committee, effectiveness of the management in ensuring regulatory compliance and adequacy of control exercised by the head / controlling offices.

The audit function is an important element of the corporate governance process and the independence of this function is crucial to good corporate governance. Audit Committee of the Boards, constituted at the instance of RBI, perform the role of overseeing concerns about internal controls and recommendations for their improvement. To ensure both professionalism and independence of these committees, Chartered Accountant directors on the boards of banks are mandatory members and the Chairman or Chief Executive Officer is not to be part of the Audit Committee. Foreign banks are not insisted upon to have local audit committee for their Indian branches. Their branches have a compliance function that reports to their head office on the branches' compliance with RBI inspection findings and features arising out of internal inspections and statutory audit.

RBI has Nominee directors on the boards of all public sector banks and some of the old private sector banks. Further, the Government also nominates directors on the boards of all public sector banks. Of late, RBI has been withdrawing its nominees from the boards of well managed old private banks.

To improve the effectiveness of the non-official directors and bring in effective corporate governance at the board level in banks, guidelines have been issued focusing the attention of directors on certain areas such as (i) the prescribed calendar of reports / returns to be placed before the Board / Managing Committee of the bank (iv) corrective action required to be taken by the bank on issues of supervisory concern (v) adherence to the deadlines for complying with various action points committed under Monitorable Action Plan during discussions in Annual Financial Inspection findings as well as achievement of targets agreed during MoU discussions with RBI. Further, the guidelines also require the directors to keep watch on matters which come to the board of the banks as also what should have come to the board and to inform the Department of Banking Supervision on matters of supervisory concern

RBI has always been committed to enhancing the element of transparency and adequate disclosures in the financial statements of banks. The formats of balance sheet and profit & loss account have been prescribed in the Banking Regulation Act, 1949, and banks have to strictly comply with this. The accounts and balance sheets are required to be duly audited by statutory auditors (including branch auditors) appointed with the approval of RBI. While international accounting standards are broadly followed, specific valuation standards have been prescribed in respect of investments and foreign exchange positions.

The task of moving towards greater disclosure by banks in India was taken up in 1982 when the formats of the financial statements were revised and expanded. Following the liberalization measures introduced in the beginning of this decade, the process and extent of disclosure by the banking system has been further enhanced. Over the past few years, banks have been advised to disclose key information on capital adequacy and composition, NPA's, provisions, investments and shareholding of Government. Banks are also required to disclose certain critical financial ratios on profitability and efficiency. More recently, banks have been asked to disclose maturity pattern of assets and liabilities, movement in NPA's and exposure to sensitive sectors.

As a part of its efforts to enhance the credibility of information available on Indian banking system, RBI publishes (since March 1998) bank-specific information on financial and performance indicators, including asset quality ratios, CRAR and earning ratios in its annual publication of 'Trends and Progress in Banking in India'