IMPACT OF CORPORATE GOVERNANCE ON INDIAN BANKS

Impact of corporate governance on banks profitability in India

Abstract

The corporate governance of banks in developing economies is important, if for no other reason than the prevalence and severity of banking instability in many of these economies. In India, although the issues of corporate governance have not received much attention in the first generation of financial sector reforms, this issue will become a natural choice in the second set of reforms. The article finds that the partial divestment of Public Sector Banks (PSBs) has not brought about any significant changes in the quality of corporate governance mechanisms. This study also confirms the urgent need to review the size and composition of the PSB boards in India, particularly on adequate board-level representation for private shareholders when there is mixed ownership between the government and the private sector. The considerations of the Government of India (GOI) in making board-level appointments and the degree of transparency in the appointment process requires adequate attention. The issues of limited operational autonomy and inadequate representation for private shareholders in the boards could affect the recapitalization strategy of PSBs.

Table of Content

ABSTRACTII

Background1

Aims and Objectives5

Scope of the study7

Key Words9

CHAPTER II: LITERATURE REVIEW10

Introduction10

Changes since liberalization13

Board Size15

India: the financial sector and reforms17

Models18

I. The managing agency model of corporate government18

II. The business house model of corporate governance21

Financial and banking sectors24

Ownership structure25

Control26

Performance28

III: The Anglo-American model of,corporate governance29

Company law30

The fmancial and banking sectors30

Trade, foreign investment and industrial policy32

CHAPTER III: RESEARCH METHODOLOGY35

METHODOLOGY35

MEASUREMENT AND DATA36

CHAPTER IV: DISCUSSION AND ANALYSIS40

Results40

Discussion43

Financial reform in India43

Corporate Governance of Banks45

Analysis and Findings48

A snapshot view of changes in the financial structure51

Econometric analysis54

Diversification by entrepreneurs and stock market development55

Optimal contracting and financial market55

The equity market and information aggregation56

Interpretation59

CHAPTER V: CONCLUSION AND RECOMMENDATION62

Conclusion62

REFERENCES70

Chapter I: Introduction

Background

The purpose and objectives of cooperatives provide the framework for cooperative corporate governance. Co-operatives are organised groups of people and jointly managed and democratically controlled enterprises. They exist to serve their members and depositors and produce benefits for them. Co-operative corporate governance is therefore about ensuring co-operative relevance and performance by connecting members, management and the employees to the policy, strategy and decision-making processes.

In fact, the very definition of corporate governance stems from its organic link with the entire gamut of activities having direct or indirect influence on the financial health of corporate entities. For the Nobel Prize-winning economist Milton Friedman, who was one of the first to attempt a definition, corporate governance is to conduct business in accordance with owner or shareholders' desires which generally will be to make as much money as possible while conforming to the basic rules of the society embodied in law and local customs. In subsequent definitions, the scope of corporate governance has got expanded. While some experts say corporate governance means doing everything better, to improve relations between companies and their shareholders, to encourage people to think long-term, to ensure that information needs of all shareholders are met and to ensure that executive management is monitored properly in the interest of shareholders, the Former President of World ...