Taking cues from the incidence of corporate governance lapses in the year, the Reserve Bank of India (RBI) is in the process of issuing draft guidelines on corporate governance for regulated entities. The banking regulator cautioned in a report on trend and progress that recent governance failures in some financial entities have brought to the fore the impact of the quality of corporate governance on efficiency in allocation of resources as well as on financial stability.
Pointing specifically at private banks, the RBI has flagged off the state of corporate governance in private banks. In its report, the RBI said: “The fault lines are becoming evident in the private bank’s corporate governance.”
Shriram Subramanian, founder & MD, InGovern Research, said: “The recent incidents of alleged corporate governance lapses in Yes Bank, PMC Bank and ICICI Bank earlier have prompted the regulator to bring corporate governance norms for regulated entities.”
The central bank had earlier found major irregularities in PMC Bank, including major financial violations, failure of internal controls and systems, and wrongdoing and under-reporting of its lending exposure.
In its Annual Report for the year ended March 31, 2019, HDIL has disclosed that it banks with a dozen different entities. While the list includes small banks such as Jammu and Kashmir Bank and troubled institutions such as IL&FS, PMC Bank did not find a mention anywhere.
Amit Tandon, MD of Institutional Investor Advisory Services IIAS, said, “It is not just this year but the regulator is taking the approach of cleaning the banking sector in a calibrated manner.” These guidelines will be in line with the suggestions made by PJ Nayak Committee earlier, he added.
The growing size and complexity of the Indian financial system underscores the significance of strengthening corporate governance standards in regulated entities, RBI said in its report.
On what could be the broad contours of the guidelines on corporate governance, Shriram Subramanian, founder & MD, InGovern Research, said, “ RBI is likely to emphasize on transparency of disclosures, avoiding conflict of interest and proper monitoring.”
