Financial Standards and Codes: Report of Advisory Group on Banking Supervision

Corporate Governance - Summary of Recommendations

1. The quality of corporate governance should be the same in all types of banking organisations irrespective of their ownership.

2. The process of induction of directors into banks’ boards and their initial orientation may be streamlined.

3. Banks need to develop mechanisms which can help them ensure percolation of their strategic objectives and corporate values throughout the organisation.

4. Boards need to set and enforce clear lines of responsibility and accountability for themselves as well as the senior management and throughout the organisation.

5. Linkage between contribution and remuneration/reward should be established. Compensation Committees of the board could be set up for the purpose.

6. Nomination Committees to assess the effectiveness of the board and direct the process of renewing and replacing board members are desirable.

7. Disclosures in respect of committees of the board and qualifications of the directors, incentive structure and the nature and extent of transactions with affiliated and related parties need to be encouraged.

8. A provision on the lines of Section 20 of the Banking Regulation Act, 1949, which prohibits loans and advances to directors and their connected parties, will have to be made in respect of large shareholders also. Information on transactions with affiliated and related parties should be disclosed.

9. There is some overlap in the role of the Reserve Bank of India as owner/owner’s representative and as the regulator/ supervisor, which should be corrected.

10. Government ownership of banks is not conducive to any serious and urgent corrective action by the regulator.