Vol 3, Issue No.6, June 2003
 
 
National Events

Hony. Editor
Dr. Bindi Mehta
(Director, Research at ICSI - CCRT, Formerly, Chief economist, CRISIL









 
National Events
Governance - A key issue in banking

Corporate Governance is one of the most critical issues that banks have to pay attention to in all earnest, according to Reserve Bank of India (RBI) Governor. Unlike companies, there is an external dimension to the issue of corporate governance in banks. It is not just shareholders interest, but that of depositors too, which is involved. Banks are custodians of public wealth, and there must be a system of internal check and balances to ensure that these interests are safeguarded. The RBI governor was speaking on the occasion of Financial Express “Best Banks Award” function for year 2001-2002. The awards for the best Universal Bank and the Best Private Bank went to Jammu & Kashmir Bank Ltd.

Chief Editor of Financial Express, Dr. Sanjay Baru said that Brehad Research & Information Services (BRIS) have conceived the underlying ranking methodology. Unlike other bank rankings, the methodology used is dynamic, not static and the comprehensive parameters include: a) operational efficiency, b) profitability, c) productivity and d) credit efficiency.

RBI Governor, Dr. Jalan also said that the bank must worry as much about depositors as much they worry about borrowers and shareholders. To keep faith with depositors, they must practice good internal governance. Banks are custodians of public wealth and there must a system of internal check and balances to ensure that bank do not betray this trust, said the central bank governor.



 
 
 
   
Companies Bill Specifies Independent Directors

Indian public companies may soon be required to have at least seven directors out of which majority of directors should be independent on the boards. A provision to this effect has been incorporated in the proposed Companies (Amendment) Bill, 2003, which was introduced in the Parliament on 7 May, 2003.

Every public company having a paid-up capital and free reserves of Rs 5 crore or more, or turnover of Rs 50 crore or more shall have a minimum of seven directors out of which majority of directors should be independent directors. Further, such public companies would also have a prescribed number of women directors. The Companies Bill envisages that no public company would have more than 15 directors.

Besides this, to be appointed as an independent director, the Bill stipulates requirement of a training certificate from a Central Government approved institute.

The Companies (Amendment) Bill, 2003, specifies that only those who have undergone training by a Central Government notified institute would be eligible to be appointed as an independent director.

Further, the Companies (Amendment) Bill, 2003, seeks to define auditor-company relationship and prescribes stiffer penalties for non-compliance. The Bill has incorporated the recommendations of the Naresh Chandra Committee on Corporate Audit and Governance as well as the Joint Parliament Committee (JPC) on the stock market scam, 2001, and is reminiscent of the 1997 Companies Bill.

(Source: Business Line, 8 May, 2003)

 





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It is not only the large defaulters, which have taken investors for ride. As many as 65 vanishing companies in Gujarat have siphoned off more than Rs. 200 crore from investors. Highly-placed sources revealed that the Department of Company Affairs (DCA) has started legal proceedings against 149 vanishing companies, of which more than one-third are Gujarat based.

Interestingly, promoters of most of these companies were unavailable at their registered office addresses, while others have adopted a unique modus operandi of taking their peons, drivers and servants on their board of directors. Accordingly to ROC officials, a high-powered Central Co-ordination and Monitoring Committee (CCMC), co-chaired by secretary, Department of Company Affairs (DCA) and Chairman, Securities of Exchange Board of India (SEBI) was set up to monitor the action taken against the vanishing companies and unscrupulous promoters who misused the funds raised from the public.

Most of these vanishing companies were registered during the early 1990s, when the capital market has witnessed a boom and many new companies had tapped it and collected funds from the public through issue of shares and debentures.





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ICSI working on CG ratings, plans directors workshops

The Institute of Company Secretaries of India (ICSI) is contemplating venturing into corporate governance rating of enterprises. The Institute will also organise a series of workshops for directors to improve level of corporate governance. The Institute has also issued a monograph on corporate governance. The proposed rating framework comprises six parameters i.e. management, ethical standards, responsibility to customers, creativity and innovation, financial performance and disclosures standards in the order of descending priority and weightage from six to one. Leadership and strategy, competence, decision-making, and organisational climate are the sub-parameters under management while wealth creation, wealth management, wealth distribution, and sub parameter for financial performance.

The workshop on the other hand, would endeavor to develop knowledge, skills and attitude needed to become an effective member of board and also help them to develop understanding of boardroom dynamics.




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Infosys Technologies tops ICRA’s governance list

Credit rating agency ICRA has given the highest rating to Infosys Technologies for corporate governance processes and practices followed by the company. ICRA has given 'CGR1' rating to Infosys, which is the first company to be rated highest on corporate governance by ICRA.

Earlier, ICRA has rated the tobacco giant, ITC and Godrej Consumer Products also for corporate governance and rated both the companies as 'CGR2'. ICRA's corporate governance rating scale includes six stages from ‘CGR1’ to ‘CGR6’. ICRA’s Chief Ratings Officer, Mr. Takkar claimed that Infosys had a transparent shareholding pattern, sound board practices, interactive decision making process, high level of transparency and disclosure norms encompassing all important aspects of the company' operations.


© 2001 Academy of Corporate Governance