REPORT OF THE SEBI COMMITTEE ON CORPORATE GOVERNANCE(N.NARYANMURTHY- CHAIRMAN)( 8 Feb. 2003 )TERMS OF REFERENCE- To review the performance of corporate governance- To review the role of companies in responding to rumours and other price sensitive information circulating in the market, in order to enhance the transparency and integrity of the market.

RECOMMENDATIONSAUDIT COMMITTES1- Review of information by Audit Committees (Mandatory)2- Financial Literacy of members of Audit Committee (Mandatory)AUDIT REPORTS AND AUDIT QUALIFICATIONS3- Disclosure of accounting treatment (Mandatory)4- Audit Qualifications ( Non mandatory)RELATED PARTY TRANSACTIONS5- Basis for Related Party Transactions (Mandatory)6- Definition of Related Party Transactions (Mandatory)

RECOMMENDATIONSRISK MANAGEMENT7- Board disclosures (Mandatory)8- Training of Board members (Non-mandatory) PROCEEDS FROM INITIAL PUBLIC OFFERINGS (IPO)9- Use of Proceeds (Mandatory)CODE OF CONDUCT10- Written code for executive management (Mandatory)NOMINEE DIRECTORS11- Exclusion of Nominee Directors from the definition of Independent directors (Mandatory)

RECOMMENDATIONSNON-EXECUTIVE DIRECTOR COMPENSATION12- Limits on Compensation paid on Independent directors (Mandatory)INDEPENDENT DIRECTORS13- Definition of Independent DirectorsWHISTLE BLOWER POLICY14- Internal Policy on Access to Audit Committee (Mandatory)15- Whistle Blower Policy (Mandatory)

RECOMMENDATIONSSUBSIDIARY COMPANIES16- Audit Committee Requirements (Mandatory)REAL TIME DISCLOSURESEvaluation of Board Performance17- Mechanism of evaluating non executive board members (Non mandatory)Analyst Report18- SEBI should make the rules on disclosures of Analyst Report (Mandatory)

RECOMMENDATIONSRECOMMENDATIONS OF NARESH CHANDRA COMMITTEE19- Disclosure of Contingent Liabilities20- CEO/COO Certification21- Definition of Independent Director ( All Mandatory)

OTHER SUGGESTIONSHARMONISATIONREMOVAL OF INDEPENDENT DIRECTORDISGORGEMENT OF PROFITSTERMS OF OFFICE OF NON-EXECUTIVE DIRECTORSCORPORATE GOVERNANCE RATINGSMEDIA SCRUTINYIMPLEMENTATION END NOTE

OTHER RECOMMENDATIONS28- DCAs office29- Miscellaneous - Random scrutiny of audited accounts - Internal code of ethics - Research on corporate governance30- Audit firms

RECOMMENDATIONSTRAINING OF DIRECTORS9- Need based training programmes/seminars/workshops to acquaint the directors with the emerging developments/challenges facing the banking sector,10- Separate the office of chairman and managing director,11- Sufficiently long tenures of whole time directors,12- Undertaking from every director for discharging their responsibilities to the best of their abilities.

RECOMMENDATIONS

REMUNERATION TO DIRECTORS

13- Existing level of remuneration is inadequate, should be increased and may include stock-options,

PROHIBITION- SEC. 20 OF B.R ACT, 1949

14- Prohibition (Sec.20 of BR Act) on lending to companies in which a director is interested, should go away.

RECOMMENDATIONSINFORMATION FLOW TO/FROM THE BOARD15- Reviews dealing with various performance areas to be put up to the Supervisory Committee of the Board and a summary of each review to the Board for scrutiny & action,16- Minutes to be recorded in uniform & formalised manner.

COMPANY SECRETARY17- Qualified Company Secretary to be appointed in all banks, and should also have a Compliance Officer reporting to the Secretary

RECOMMENDATIONSCOMMITTEES OF THE BOARD18- a) Supervisory Committee b) Audit Committee c) Nomination Committee d) Shareholders Redressal Committee e) Risk Management CommitteeDISCLOSURES AND TRANSPARENCY19- a) Progress made in putting in place a progressive risk management system, b) Exposure to related entities c) Conformity with Corporate Governance standard

RECOMMENDATIONSREVIEW OF IMPLEMENTATION

20- Banks to evolve a strategy for implementation of the recommended standard of Corporate Governance. Reviews after 12 months or 6 months as deemed appropriate.