DATA ANALYSIS AND INTERPRETATION - …shodhganga.inflibnet.ac.in/bitstream/10603/38431/8/chapter...

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DATA ANALYSIS AND INTERPRETATION

“Maintaining governance standards requires accountability at all levels of management.

Hence corporate conduct and culture, based on attributes of self regulation and openness

contribute to the essence of corporate governance”

Naresh Chandra

4.1 INTRODUCTION:

Banks are critical component of the economy. Nationalised banks are owned by the

government and thus the issue of corporate governance in Indian banks is complicated due to

the political intervention in their operation. Corporate governance in banks ensures

transparency and prevents scandals. With high level of transparency and disclosures banks

can not only achieve efficiency but also helps in better performance. The disclosure of

information helps banks improve performance and increase shareholder‟s wealth. The

Sanskrit Subhashita “Satyam bruiyat, priyam bruiyat, na bruiyat satyam apriyam “which

means Speak truth that is palatable, do not speak truth that is unpalatable. It is necessary that

proper disclosures are made by each bank for better governance. In the present chapter the

data collected is analyzed and interpreted.

The chapter has the framework where initially the corporate governance index is prepared

using sixty five variables. The presence of the variable is marked as 1 and the absence and

not properly disclosed is marked as 0. The corporate governance disclosure of five banks for

seven years is determined.

The corporate governance disclosure level is divided into three main dimensions that are

mandatory, non mandatory and other corporate governance disclosures. Disclosure with

respect to three major dimensions is determined and later the overall corporate governance

disclosure level is calculated.

To evaluate the corporate governance relation with that of bank performance initially the

banking performance is analyzed using the three triggers ROA, CAR, NPA. Using the

bivariate correlation the corporate governance disclosure level is correlated with the bank

performance.

The evaluation of corporate governance in banks is also made taking into consideration the

proportion of the non executive director, board committees and the board meeting. The

80

proportion of non executive director relation with that of bank performance is analyzed. The

relation between the board committees and the number of board meeting with the disclosure

level is also evaluated.

Lastly, the corporate governance is evaluated from the shareholders perspective to evaluate

the opinion on the disclosure and whether the corporate governance has the effect on their

investment decision.

4.2 CORPORATE GOVERNANCE DISCLOSURE LEVEL:

The first step in determining the corporate governance disclosure level is to construct the

corporate governance disclosure index. Corporate governance disclosure index is constructed

using sixty five independent variables. The relation between corporate governance and bank

performance is analyzed based on 65 variables through checklist method

The important dimensions of the research analysis are

1. Bank's philosophy on code of governance

2. Board of Directors

3. Audit committee

4. Remuneration Committee

5. Shareholders Committee

6. General Body meetings

7. Disclosures

8. Means of Communication

9. General Shareholder information

10. Non-Mandatory Requirements

11. Other Corporate Governance Requirements

The eleven dimensions are further divided into sixty variables which are the base of the entire

study. Bank‟s philosophy on code of governance, Board of Directors, Audit committee,

Remuneration Committee, shareholders committee, general body meetings, disclosures,

means of communication, general shareholder information are the mandatory disclosure

requirements.

Non mandatory disclosure requirements include:

The Board which specifies the disclosures regarding non-executive Chairman who may be

entitled to maintain a Chairman's office at the bank's expense and also allowed

81

reimbursement of expenses incurred in performance of his duties. It needs to specify that

Independent Directors may have a tenure not exceeding aggregate period of nine years, on

the Board of a company. The listed bank may ensure that the person who is being appointed

as an independent director has the requisite qualifications and experience which would be of

use to the company and in the opinion of the company, would enable him to contribute

effectively to the bank in his capacity as an independent director.

Disclosure of Remuneration Committee –

i. The board may set up a remuneration committee to determine on their behalf and on

behalf of the shareholders with agreed terms of reference, the company‟s policy on

specific remuneration packages for executive directors including pension rights and

any compensation payment.

ii. To avoid conflicts of interest, the remuneration committee which would determine

the remuneration packages of the executive directors may comprise of at least three

directors, all of whom should be non-executive directors, the Chairman of

committee being an independent director.

iii. All the members of the remuneration committee could be present at the meeting.

iv. The Chairman of the remuneration committee could be present at the Annual

General Meeting, to answer the shareholder queries. However, it would be up to the

Chairman to decide who should answer the queries.

Disclosure of Shareholder Rights where a half-yearly declaration of financial performance

including summary of the significant events in last six-months, may be sent to each

household of shareholders.

Apart from above disclosures the disclosure in relation to the training of Board Members,

Audit qualifications where Bank may move towards a regime of unqualified financial

statements and whistle blower policy is part of the non mandatory requirements.

Other corporate governance requirements includes Profile of directors appointed during the

year mentioned by the bank, Code of conduct of banks, CSR ie., corporate social

responsibility taken up by the bank mentioned, disclosure about risk management, segment

wise or product wise performance part of Management Discussion & Analysis, nomination

committee, Auditor‟s certificate provided by the Bank, CEO or CFO certificate provided by

the Bank, Chairman of the Board Executive or Non Executive mentioned and information

related to Independent directors need to be well defined.

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Table 4.1

Construction of Corporate Governance Disclosure Index

Sl.

No. Questions:

1 Does the bank have brief statement on its philosophy on the code of governance?

2

Board of Directors:

Whether the bank have mentioned Composition and category of directors, for

example, promoter, executive, non-executive, independent non-executive,

nominee director, which institution represented as lender or as equity investor?

3 Does the Bank have attendance of each director at the Board meetings and the last

AGM mentioned in the report?

4 Whether the Bank has mentioned the number of other Boards or Board

Committees in which he/she is a member or a Chairperson?

5 Whether the Bank has mentioned the number of Board meetings held and the date

on which those meetings were held?

6 Audit Committee:

Does the Bank have brief description of terms of reference of Audit committee?

7 Whether the Bank has mentioned the Composition, name of members and

Chairperson of the Audit committee?

8 Have the Meetings and attendance during the year been recorded by the Bank?

9

Remuneration Committee:

Does the Bank give brief description of terms of reference of Remuneration

Committee?

10 Whether the Composition, name of members and Chairperson of Remuneration

Committee mentioned?

11 Whether the Bank has mentioned the attendance during the year?

12 Is the Remuneration policy of Bank mentioned in the report?

13 Whether the Bank has mentioned details of remuneration to all the directors, as

per format in main report?

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14

Shareholders Committee:

Whether the name of non-executive director heading the committee mentioned in

the report?

15 Does the Bank mention the name and designation of compliance officer of

Shareholder Committee?

16 Whether the number of shareholders‟ complaints received so far mentioned by the

Bank?

17 If the number of complaints not solved to the satisfaction of shareholders

mentioned?

18 If the Number of pending complaints mentioned by the Bank?

19 General Body meetings:

Does the Bank mention the location and time, where last three AGMs were held?

20 Whether any special resolutions passed in the previous 3 AGMs been recorded?

21 Whether any special resolution passed last year through postal ballot and details

of voting pattern mentioned?

22 Does the Bank mention the person who conducted the postal ballot exercise?

23 Whether any special resolution is proposed to be conducted through postal ballot

mentioned by the Bank?

24 Does the bank mention the procedure for postal ballot?

25

Disclosures:

Whether disclosures on materially significant related party transactions that may

have potential conflict with the interests of bank at large made?

26

Whether following is included in the disclosure: Details of non-compliance by the

company, penalties, and strictures imposed on the company by Stock Exchange or

SEBI or any other statutory authority, on any matter related to capital markets,

during the last three years?

27 Whether the Bank has the Whistle Blower policy and affirmation that no

personnel have been denied access to the audit committee?

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28 Whether the Details of compliance with mandatory requirements and adoption of

the non-mandatory requirements of this clause given?

29 Means of communication

Whether the Quarterly results disclosed?

30 Does the bank display Newspapers wherein results normally published?

31 Does the bank disclose name of the website, where displayed?

32 Whether the official news releases has been disclosed?

33 Whether the presentations made to institutional investors or to the analysts are

made known?

34 Whether management discussion and analysis is a part of annual report or not?

35 Whether the Bank has updated General Shareholder information related to:

AGM: Date, time and venue?

36 Financial year

37 Date of Book closure

38 Dividend Payment Date

39 Listing on Stock Exchanges Stock Code

40 Market Price Data : High, Low during each month in last financial year

41 Performance in comparison to broad-based indices such as BSE Sensex, CRISIL

index etc.

42 Registrar and Transfer Agents Share Transfer System

43 Distribution of shareholding Dematerialization of shares and liquidity

44 Outstanding GDRs/ADRs/Warrants or any Convertible instruments, conversion

date and likely impact on equity

45 Branch locations and address of correspondence

46

Non-Mandatory Requirements:

The Board

Whether A non-executive Chairman may be entitled to maintain a Chairman‟s

office at the company‟s expense?

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47 Whether they are allowed reimbursement of expenses incurred in performance of

his duties?

48 Whether there are any Independent Directors who may have a tenure not

exceeding, in the aggregate, a period of nine years, on the Board of a company?

49

Remuneration Committee

Whether the board has set up a remuneration committee to determine on their

behalf and on behalf of the shareholders with agreed terms of reference, the

company‟s policy on specific remuneration packages for executive directors

including pension rights and any compensation payment?

50

To avoid conflicts of interest, the remuneration committee, which would

determine the remuneration packages of the executive directors may comprise of

at least three directors, all of whom should be non-executive directors, the

Chairman of committee being an independent director, Does the Bank have it?

51 Do all the members of the remuneration committee be present at the meeting?

52

Shareholder Rights

Whether half-yearly declaration of financial performance including summary of

the significant events in last six-months has been sent to each individual

shareholders?

53

Audit qualifications

Whether the Bank may move towards a regime of unqualified financial

statements stated?

54 Does the Bank conduct training for its Board members?

55 Whether the Bank has Pear Group of BOD to evaluate the performance of non-

executive directors?

56 Other Corporate Governance Requirements

If the Profile of directors appointed during the year mentioned?

57 Whether the Bank has mentioned Code of conduct?

58 Whether the CSR initiatives taken up by the Bank mentioned?

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59 Whether there is disclosure about risk management?

60 Whether segment wise or product wise performance part of Management

Discussion &Analysis?

61 Does the Bank have nomination committee?

62 Whether Auditor‟s certificate provided by the Bank?

63 Whether CEO or CFO certificate provided by the Bank?

64 Is the Chairman of the Board Executive or Non Executive mentioned?

65 Are the Independent directors well defined?

Corporate governance disclosure index is constructed based on sixty five variables. 1 to 45

are mandatory disclosure requirement related questions. 46 to 55 are non mandatory

disclosure requirements related question and 56 to 65 are other corporate governance

disclosure requirements related questions.

4.2.1 CORPORATE GOVERNANCE DISCLOSURE LEVEL OF BANKS

The analysis of the all the five banks for the seven years is made using the corporate

governance disclosure index. The presence or absence of mandatory, non mandatory and

other corporate governance is measured with the constructed index. 65 variables were

analyzed for 5 banks (65*5=) 325 variables for seven years from 2005 to 2012 (325*7=2275)

which becomes 2275 variables. The corporate governance disclosure index using

dichotomous question about presence and absence of the parameter is used to determine the

corporate governance disclosure level of each bank for seven years that is 2005-2012. The

presence of the variable is marked 1 and the absence is marked as 0. Disclosure variable

which are not properly reported in the bank‟s corporate governance report is also marked 0

since they are also considered as absence of the parameter.

In order to calculate the overall corporate governance disclosure level and its percentage the

below formula is applied.

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Overall CGDL= Sum of total disclosures made by the bank.

Percentage of overall CGDL =

Once the corporate governance disclosure index is constructed, MS Excel work sheet which

includes the corporate governance disclosure index for seven years is prepared for the all the

five banks. The presence and the absence of the variable is marked in the constructed index

for respective banks for all the seven years that is 2005 to 2012.

Variables present in the corporate governance report and the annual report of the bank is

entered in the work sheet for the given period for all the five banks. Once the sixty five

variables are entered then the total of the variable is taken into consideration. The total score

of individual banks are calculated. Later to get the percentage of overall corporate

governance disclosure level the total score of each bank is divided by the maximum possible

score that is 65 and multiplied with 100 to get the disclosure percentage. The overall

corporate governance disclosure requirement is the sum of the mandatory, non mandatory

and other corporate governance requirement variables. The results of all the three dimensions

are analysed later the overall corporate governance disclosure level is used to correlate with

the bank performance.

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Table: 4.2

Mandatory Corporate Governance Disclosure Level

SL.

NO. BANK

2005-

06

2006-

07 2007-08

2008-

09

2009-

10

2010-

11

2011-

12 Average %

1 Corporation

Bank 37 39 40 40 40 40 40 39.43 87.62

2 Canara

Bank 41 41 41 41 41 41 41 41.00 91.11

3 PNB 38 41 42 42 42 42 43 41.43 91.11

4 Vijaya

Bank 38 39 38 38 38 38 38 38.14 84.76

5 Syndicate

Bank 37 37 37 37 36 38 39 37.29 82.86

Average 38.2 39.4 39.6 39.6 39.4 39.8 40.2 39.46

Mandatory disclosure is an important corporate governance disclosure variable. It is

independent in nature. There are forty five mandatory requirements which are used to

construct the corporate governance disclosure index.

The above table highlights the mandatory disclosure of five banks for seven years. Canara

Bank and PNB shows the highest disclosure level with 91.11 percent, followed by

Corporation Bank with 87.62%, Vijaya Bank with 84.76% and the least disclosure is by

Syndicate Bank with 82.86%.

In the year 2005-06 the average disclosure of five banks were 38.2 which has gradually

increased year after year where in 2011-12 it is 40.2.

After 2006 where SEBI made the compulsion for disclosures there is an increase in the

disclosure level of the banks.

There is gradual increase in the mandatory disclosure level but in the year 2011-12 it is

showing declining trend which needs to be considered.

89

Table: 4.3

Non Mandatory Corporate Governance Disclosure Level

SL.

NO. BANK

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12 Average %

1 Corporation

Bank 7 8 9 9 9 9 9 8.57 85.71

2 Canara Bank 8 8 8 9 9 9 9 8.57 85.71

3 PNB 4 4 4 4 4 9 9 5.43 54.29

4 Vijaya Bank 3 3 3 3 3 3 3 3.00 30

5 Syndicate

Bank 0 9 9 9 9 9 9 7.71 77.14

Average 4.4 6.4 6.6 6.8 6.8 7.8 7.8 6.66

( Source: Banks Annual Report)

Non mandatory requirements are desirable for effective governance. There are ten non

mandatory requirements which are subdivided under different heads. The above table

highlights the Non mandatory disclosures of five banks for seven years.

Corporation bank and Canara Bank displays highest disclosure level with 85.71% followed

by Syndicate bank with 77.14%, PNB with 54.29% and the least disclosure is by Vijaya Bank

with 30%.

The above table shows the yearly average of the disclosure level of five banks too. It was 4.4

in the year 2005-06, in the year 2006-07 it increased to 6.4, in the year 2007-08 it increased

to 6.6 later to 6.8 in the year 2008-09 and 2009-10. In the year 2010-11 banks showed the

disclosure level of 7.8 which has remained same in the year 2011-12. There is increase in the

non mandatory disclosure level of banks.

90

Table 4.4

Other Corporate Governance Disclosure Level

SL.

NO. BANK

2005-

06

2006-

07

2007-

03

2008-

09

2009-

10

2010-

11

2011-

12 Average %

1 Corporation

Bank 8 9 10 10 10 10 10 9.57 95.71

2 Canara Bank 6 6 6 6 6 6 6 6.00 60

3 PNB 7 8 9 9 9 9 9 8.57 85.71

4 Vijaya Bank 7 8 9 9 9 9 9 8.57 85.71

5 Syndicate

Bank 5 6 6 7 8 8 8 6.86 68.57

Average 6.6 7.4 8 8.2 8.4 8.4 8.4

(Source: Banks Annual Report)

Table 4.4 highlights the Other corporate governance disclosure requirements which are

desirable for effective governance in the bank.

Corporation Bank displays a highest disclosure with bank average of 9.57 that is 95.7%

followed by PNB, Vijaya Bank with 85.71% , Syndicate bank with 68.57% and the least

disclosure is made by Canara bank with 60.00%.

From 2005-12 Corporation bank has made highest disclosure, followed by PNB, Vijaya Bank

with 8.57 as the mean value. In the year 2005-06 Syndicate bank has the least disclosure.

However Canara Bank has the least disclosure for the six years.

The yearly average of five banks for seven years is highlighted in the table. In the year 2005-

06 bank average is 6.6 which has increased to 7.4 in the year 2006-07, 8 in the year 2007-08

and from 2008-09 onwards the average disclosure level is 8.4 till 2011-12.

There is an increasing trend in other corporate governance disclosure level of banks which is

good for better performance of banks.

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Table 4.5

Overall Corporate Governance Disclosure Level

SL

NO BANKS

2005-

06

2006-

07

2007-

08 2008-09

2009-

10

2010-

11

2011-

12 Average % Rank

1 Corporation

Bank 52 56 59 59 59 59 59 57.57 88.57 1

2 Canara

Bank 55 55 55 56 56 56 56 55.57 85.49 2

3 PNB 49 53 55 55 55 60 61 55.43 85.27 3

4 Vijaya

Bank 48 50 50 50 50 50 50 49.71 76.48 5

5 Syndicate 42 52 52 53 53 55 56 51.86 79.78 4

Average 49.2 53.2 54.2 54.6 54.6 56 56.4

(Source: Banks Annual Report)

Table 4.5 highlights the overall corporate governance disclosure index of five banks. The

Bank average and the yearly average is calculated using the mean value. On the basis of the

yearly average we can infer that every year corporate governance disclosure is showing

increasing trend.

Post 2005-06 periods where the corporate governance report was made compulsory

for all the listed banks the disclosure level has increased. In case of the Corporation

bank there is increase in the disclosure in the year 2006-07 and 2007-08 and has

remained constant till 2011-2012.

In case of the Canara bank the disclosure has increased in 2008-09 and has remained

constant thereafter. Vijaya Bank has displayed increase after 2006-07 and is same

over the period. PNB has shown varied increase in the disclosure level from 2006

onwards. Syndicate Bank has also shown varied increase in the level of disclosure.

Corporation bank has recorded the highest disclosure for seven years with 88.57%

followed by Canara Bank with 85.49%, PNB with 85.27% and Syndicate Bank with

79.78% and Vijaya Bank have recorded the least disclosure with 76.48%.

In the year 2005-06 Canara Bank depicts the highest disclosure and the Syndicate

bank with the lowest disclosure level. In the year 2006-2010 Corporation bank

discloses highest disclosure and Vijaya Bank has least disclosure. From 2010-12

Punjab National bank has got highest disclosure and the Vijaya Bank has got least

disclosure.

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Based on the average disclosure for the period of 2005-2012 Corporation Bank has got

highest rank followed by Canara Bank, PNB, Syndicate Bank and the Vijaya Bank has got

lowest rank. It is inferred that there is no uniformity in the disclosure level of banks.

Table: 4.6

Mandatory Requirements:

Code of governance and Board of Directors

Sl.

No. CG variable

Corporation

Bank

Canara

bank PNB

Vijaya

Bank

Syndicate

bank

1. Does the bank have brief

statement on its philosophy

on the code of governance? 100.00 100.00 100.00 100.00 100.00

2. Board of Directors:

Whether the bank have

mentioned Composition and

category of directors, for

example, promoter,

executive, non-executive,

independent non-executive,

nominee director, which

institution represented as

lender or as equity investor? 100.00 100.00 100.00 100.00 100.00

3. Does the Bank have

attendance of each director at

the Board meetings and the

last AGM mentioned in the

report? 100.00 100.00 100.00 100.00 100.00

4. Whether the Bank has

mentioned the number of

other Boards or Board

Committees in which he/she

is a member or a

Chairperson? 100.00 100.00 100.00 0.00 100.00


mentioned the number of

Board meetings held and the

date on which those meetings

were held? 100.00 100.00 100.00 100.00 100.00

6. Audit Committee:

Does the Bank have brief

description of terms of 100.00 100.00 100.00 100.00 100.00

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reference of Audit

committee?


mentioned the Composition,

name of members and

Chairperson of the Audit

committee? 100.00 100.00 100.00 100.00 100.00

8. Have the Meetings and

attendance during the year

been recorded by the Bank? 100.00 100.00 100.00 100.00 100.00

The above table displays the mandatory disclosure level of each bank for seven years. It can

be observed that all the banks have disclosed the code of conduct, board of directors.

Regarding the information related to board of directors and other variables all the banks has

given good disclosures.

The information regarding whether bank has mentioned the number of other Boards or Board

Committees in which he/she is a member or a Chairperson is done by Vijaya Bank has made

least disclosure.

94

Table: 4.7

Mandatory Requirements: Remuneration Committee

Sl.

No. CG variable

Corporation

Bank

Canara

bank PNB

Vijaya

Bank

Syndicate

bank

1

Remuneration

Committee:

Does the Bank give

brief description of

terms of reference of

Remuneration

Committee? 100.00 100.00 100.00 100.00 100.00

2

Whether the

Composition, name

of members and

Chairperson of

Remuneration

Committee

mentioned? 85.71 100.00 85.71 100.00 85.71

3

Whether the Bank

has mentioned the

attendance during the

year? 85.71 100.00 85.71 100.00 100.00

4

Is the Remuneration

policy of Bank

mentioned in the

report? 100.00 100.00 85.71 100.00 100.00

5

Whether the Bank

has mentioned details

of remuneration to all

the directors, as per

format in main

report? 100.00 100.00 100.00 100.00 14.29

From the above table we can infer that Canara bank is displaying good disclosure in terms of

remuneration committee. Syndicate Bank has the least disclosure about details of

remuneration to all the directors, as per format in main report.

95

Table: 4.8

Mandatory Requirements: Shareholders Committee

Sl.

No. CG variable

Corporation

Bank

Canara

bank PNB

Vijaya

Bank

Syndicate

bank

1

Shareholders

Committee:

Whether the name of

non-executive director

heading the committee

mentioned in the

report? 100.00 100.00 100.00 100.00 100.00

2

Does the Bank

mention the name and

designation of

compliance officer of

Shareholder

Committee? 100.00 100.00 100.00 100.00 100.00

3

Whether the number

of shareholders‟

complaints received so

far mentioned by the

Bank 100.00 100.00 100.00 100.00 100.00

4

If the number of

complaints not solved

to the satisfaction of

shareholders

mentioned? 100.00 100.00 100.00 100.00 100.00

5

If the Number of

pending complaints

mentioned by the

Bank? 100.00 100.00 100.00 100.00 100.00

All the five banks are displaying good disclosure in terms of information related to

shareholder committee.

96

Table: 4.9

Mandatory Requirements: General Body meetings

Sl.

No. CG variable

Corporation

Bank

Canara

bank PNB

Vijaya

Bank

Syndicate

bank

1

Does the Bank mention

the location and time,

where last three AGMs

were held? 100.00 100.00 100.00 100.00 100.00

2

Whether any special

resolutions passed in the

previous 3 AGMs been

recorded? 100.00 100.00 100.00 28.57 100.00

3

Does the bank display

Newspapers wherein

results normally

published? 100.00 100.00 100.00 100.00 100.00

4

Whether any special

resolution passed last

year through postal

ballot and details of

voting pattern

mentioned? 0.00 0.00 71.43 100.00 0.00

5

Does the Bank mention

the person who

conducted the postal

ballot exercise? 0.00 0.00 0.00 0.00 0.00

6

Whether any special

resolution is proposed to

be conducted through

postal ballot mentioned

by the Bank? 0.00 0.00 100.00 0.00 0.00

7

Does the bank mention

the procedure for postal

ballot? 0.00 0.00 0.00 0.00 0.00

8

Disclosures:

Whether disclosures on

materially significant

related party

transactions that may

have potential conflict

with the interests of

bank at large made? 100.00 100.00 100.00 100.00 100.00

97

9

Whether following is

included in the

disclosure: Details of

non-compliance by the

company, penalties,

strictures imposed on

the company by Stock

Exchange or SEBI or

any other statutory

authority, on any matter

related to capital

markets, during the last

three years? 100.00 100.00 100.00 100.00 100.00

10

Whether the Bank have

the Whistle Blower

policy and affirmation

that no personnel have

been denied access to

the audit committee? 71.43 100.00 14.29 85.71 28.57

11

Whether the Details of

compliance with

mandatory requirements

and adoption of the non-

mandatory requirements

of this clause given? 100.00 100.00 100.00 100.00 100.00

Vijaya Bank is displaying least disclosure for special resolutions passed in the previous

3AGMs been recorded. All the banks are displaying least disclosure for the postal ballot

related information. Canara bank is showing good disclosure for the information related to

whistle Blower policy and affirmation that no personnel have been denied access to the audit

committee.

98

Table: 4.10

Mandatory Requirements: Means of communication

Sl.

No. CG variable

Corporation

Bank

Canara

bank PNB

Vijaya

Bank

Syndicate

bank

1 Whether the Quaterly

results disclosed? 100.00 100.00 100.00 100.00 100.00

2

Does the bank disclose

name of the website,

where displayed? 100.00 100.00 100.00 100.00 100.00

3

Whether the official

news releases has been

disclosed? 100.00 100.00 100.00 100.00 100.00

4

Whether the

presentations made to

institutional investors

or to the analysts are

made known? 0.00 100.00 100.00 0.00 0.00

5

Whether management

discussion and analysis

is a part of annual

report or not? 100.00 100.00 100.00 100.00 100.00

6

Whether the Bank has

updated General

Shareholder

information related to:

AGM : Date, time and

venue? 100.00 100.00 100.00 100.00 100.00

7 Financial year 100.00 100.00 100.00 100.00 100.00

8 Date of Book closure 100.00 100.00 100.00 100.00 100.00

9 Dividend Payment

Date 100.00 100.00 100.00 100.00 100.00

10 Listing on Stock

Exchanges Stock Code 100.00 100.00 100.00 100.00 100.00

11

Market Price Data :

High., Low during

each month in last

financial year 100.00 100.00 100.00 100.00 100.00

99

12

Performance in

comparison to broad-

based indices such as

BSE Sensex, CRISIL

index etc. 100.00 100.00 100.00 100.00 100.00

13

Registrar and Transfer

Agents Share Transfer

System 100.00 100.00 100.00 100.00 100.00

14

Distribution of

shareholding

Dematerialization of

shares and liquidity 100.00 100.00 100.00 100.00 100.00

15

Outstanding

GDRs/ADRs/Warrants

or any Convertible

instruments,

conversion date and

likely impact on equity 100.00 100.00 100.00 0.00 0.00

16

Branch locations and

address of

correspondence 100.00 100.00 100.00 100.00 100.00

Corporation bank, Syndicate bank and Vijaya Bank is showing least disclosure for the

information related to presentations made to institutional investors or to the analysts are made

known.

Vijaya Bank has made least disclosure for information related to any special resolutions

passed in the previous 3 AGMs been recorded. In case of information related to outstanding

GDRs/ADRs/Warrants or any Convertible instruments, conversion date and likely impact on

equity Vijaya Bank and Syndicate bank has least disclosure.

Corporation bank, PNB and Syndicate has made least disclosure about the presentations

made to institutional investors or to the analysts are made known.

100

Table: 4.11

Non-Mandatory Requirements: The Board

Sl.

No

Non-Mandatory

Requirements

Corporatio

n

Bank

Canara

Bank PNB

Vijaya

Bank

Syndicat

e Bank

1

Whether A non-executive

Chairman may be entitled

to maintain a Chairman‟s

office at the company‟s

expense? 100.00 100.00 100.00 100.00 85.71

2

Whether they are allowed

reimbursement of

expenses incurred in

performance of his

duties? 100.00 100.00 100.00 0.00 85.71

3

Whether there are any

Independent Directors

who may have a tenure

not exceeding, in the

aggregate, a period of

nine years, on the Board

of a company? 0.00 0.00 0.00 0.00 0.00

The above table shows the disclosure related to the information related to the board

requirement. The information related to the independent directors is showing no disclosure.

Out of five banks Syndicate bank is showing least disclosure related to the board information.

101

Table: 4.12

Non-Mandatory Requirements: Remuneration Committee

Sl.

No

Non-Mandatory

Requirements

Corporation

Bank

Canara

Bank PNB

Vijaya

Bank

Syndicate

Bank

1

Remuneration

Committee:

Whether the board have

set up a remuneration

committee to determine

on their behalf and on

behalf of the

shareholders with agreed

terms of reference, the

company‟s policy on

specific remuneration

packages for executive

directors including

pension rights and any

compensation payment? 100.00 100.00 100.00 100.00 85.71

2

To avoid conflicts of

interest, the remuneration

committee, which would

determine the

remuneration packages

of the executive directors

may comprise of at least

three directors, all of

whom should be non-

executive directors, the

Chairman of committee

being an independent

director Does the Bank

have it? 100.00 100.00 28.57 0.00 85.71

3

Do all the members of

the remuneration

committee be present at

the meeting? 100.00 57.14 28.57 0.00 85.71

Syndicate bank, Vijaya Bank has made the least disclosure of information related to the

remuneration committee.

102

Table: 4.13

Non-Mandatory Requirements: Shareholders Rights

Sl.

No.

Non-mandatory

requirements

Corporation

Bank

Canara

bank PNB

Vijaya

bank

Syndicate

bank

1.

Shareholder Rights

Whether half-yearly

declaration of financial

performance including

summary of the

significant events in

last six-months been

sent to each individual

shareholders? 100.00 100.00 100.00 100.00 85.71

Syndicate bank has made least disclosure for the information related to the shareholder‟s

rights.

Table: 4.14

Non-Mandatory Requirements: Audit Qualification, Training for board members, and

Pear Group of BOD

Sl.

No.

Non-mandatory

requirements

Corporation

Bank

Canara

bank PNB

Vijaya

bank

Syndicate

bank

1

Audit qualifications

Whether the Bank

may move towards a

regime of unqualified

financial statements

stated? 100.00 100.00 28.57 0.00 85.71

2

Does the Bank

conduct training for

its Board members? 85.71 100.00 28.57 0.00 85.71

3


Pear Group of BOD

to evaluate the

performance of non-

executive directors? 71.43 100.00 28.57 0.00 85.71

According to the table 4.14 Vijaya Bank is displaying least disclosure for the all the variable

related to the audit qualifications, training for board members and the pear group of BOD.

103

Table: 4.15

Other Corporate Governance Requirements (A)

Sl.

No.

Other Corporate

Governance Requirements

Corporation

Bank

Canara

Bank PNB

Vijaya

Bank

Syndicate

Bank

1

If the Profile of directors

appointed during the year

mentioned? 100.00 0.00 100.00 100.00 100.00

2


mentioned Code of

conduct? 100.00 0.00 100.00 100.00 42.86

3

Whether the CSR initiatives

taken up by the Bank

mentioned? 85.71 100.00 85.71 71.43 57.14

4 Whether there is disclosure

about risk management? 100.00 100.00 100.00 100.00 100.00

The above reveals that Canara Bank has the least disclosure for the information related to the

profile of directors, code of conduct of bank. Syndicate bank has least disclosure for the CSR

initiatives.

Table: 4.16

Other Corporate Governance Requirements (B)

Sl.

No.

Non-mandatory

requirements

Corporation

Bank

Canara

bank PNB

Vijaya

bank

Syndicate

bank

1

Whether segment wise or

product wise performance

part of MD&A? 100.00 100.00 100.00 100.00 100.00

2 Does the Bank have

nomination committee? 71.43 0.00 71.43 85.71 0.00

3

Whether Auditor‟s

certificate provided by the

Bank? 100.00 100.00 100.00 100.00 100.00

4

Whether CEO or CFO

certificate provided by the

Bank? 100.00 100.00 100.00 100.00 100.00

5

Is the Chairman of the

Board Executive or Non

Executive mentioned? 100.00 100.00 100.00 100.00 85.71

6 Are the Independent

directors well defined? 100.00 0.00 0.00 0.00 0.00

Canara bank and Syndicate bank doesn‟t have disclosure related to nomination committee

since they aren‟t having it in the given time frame. Regarding independent directors been

well defined except Corporation bank no banks have proper disclosure.

104

Table 4.17

Dimension wise analysis of the disclosures of five banks for seven years

Sl. No. Dimension Percent

1 Code of governance 100.00

2 Board of Directors 95.00

3 Audit committee 100.00

4 Remuneration Committee 94.29

5 Shareholders Committee 100.00

6 General Body meetings 48.57

7 Disclosures 90.00

8 Means of Communication 88.00

9 General Shareholder information 96.36

10 Non-Mandatory Requirements 66.57

11 Other Corporate Governance Requirements 79.14

Table 4.17 displays disclosure level for five banks for seven years. According to the Clause

49 the board lays down a code of conduct for all the board members and senior management

of the bank. The code of conduct is posted on the website of the bank. In the present study the

code of governance is showing hundred percent disclosures for all the banks.

Disclosures related to the board of directors includes composition and category of directors,

attendance of each director at the board meetings, number or boards or board committee in

which he or she is a member or chairperson, and number of meetings held, dates on which

held. Board of directors has disclosures of 95%.

Qualified and independent audit committee with financially literate and at least one member

having accounting or related financial management expertise is set up by all the banks

according to the norm. The audit committee is displaying hundred percent disclosures by

banks.

Disclosure in relation to the remuneration committee is showing 94.29%. It reveals

information about the brief description of terms of reference, composition, name of members,

chairperson, attendance during the year, remuneration policy and details of remuneration to

all the directors.

105

Shareholder‟s committee is showing hundred percent disclosures. Shareholders committee

includes the name of non executive director heading the committee, name and designation of

compliance officer, number of shareholders compliant received so far, number not solved to

the satisfaction of shareholders and number of pending complaints.

General Body meetings location and time, where last three AGMs held, whether any special

resolutions passed in the previous 3 AGMs, whether any special resolution passed last year

through postal ballot – details of voting pattern, person who conducted the postal ballot

exercise, whether any special resolution is proposed to be conducted through postal ballot,

procedure for postal ballot shows 48.57% disclosures, though it is mandatory variable the

disclosure level is very low.

Disclosures on materially significant related party transactions that may have potential

conflict with the interests of company at large, Details of non-compliance by the company,

penalties, strictures imposed on the company by Stock Exchange or SEBI or any statutory

authority on any matter related to capital markets, during the last three years, Whistle

Blower policy and affirmation that no personnel has been denied access to the audit

committee and details of compliance with mandatory requirements and adoption of the non

mandatory requirements of clause shows 90% disclosures.

Means of communication with 88% disclosures includes disclosure related to newspapers

wherein results normally published, any website, where displayed whether it also displays

official news releases; and the presentations made to institutional investors or to the analysts.

General shareholder information includes details about the annual general meeting, date,

time venue, financial year, book closure date, dividend payment date, listing on stock

exchanges, stock code, market price data, performance in comparison to broad based indices,

registrar and transfer agents, share transfer system, distribution of shareholding,

dematerialization of shares and liquidity, outstanding Global Depository

Receipts(GDRs)/American Depository Receipts(ADRs), plant location, address for

correspondence. It shows 96.36% disclosures.

106

Non mandatory requirements has 66.57% disclosures includes disclosure related to the board,

about the person who is being appointed as an independent director has the requisite

qualifications and experience which would be of use to the company and which, in the

opinion of the company, would enable him to contribute effectively to the company in his

capacity as an independent director.

Remuneration Committee information under non mandatory requirement includes bank‟s

policy on specific remuneration packages for executive directors including pension rights and

any compensation payment, to avoid conflicts of interest, the remuneration committee, which

would determine the remuneration packages of the executive directors may comprise of at

least three directors.

It also contains information that the members of committee all of whom should be non-

executive directors, the chairman of committee being an independent director, all the

members of the remuneration committee could be present at the meeting, the Chairman of the

remuneration committee could be present at the Annual General Meeting, to answer the

shareholder queries.

The variables of non mandatory requirement includes information about the Shareholder

Rights, Audit qualifications, Training of Board Members, Mechanism for evaluating non-

executive Board Members and Whistle Blower Policy. Other corporate governance

disclosures display 79.14% disclosures.

107

Table: 4.18

CG Variables with hundred percent disclosures

Sl.

No. CG variable

1 Does the bank have brief statement on its philosophy on the code of governance?

2

Board of Directors: Whether the bank have mentioned Composition and category of

directors, for example, promoter, executive, non-executive, independent non-

executive, nominee director, which institution represented as lender or as equity

investor?

3 Does the Bank have attendance of each director at the Board meetings and the last

AGM mentioned in the report?

4 Whether the Bank has mentioned the number of Board meetings held and the date on

which those meetings were held?

5 Audit Committee: Does the Bank have brief description of terms of reference of

Audit committee?

6 Whether the Bank has mentioned the Composition, name of members and Chairperson

of the Audit committee?

7 Have the Meetings and attendance during the year been recorded by the Bank?

8 Remuneration Committee: Does the Bank give brief description of terms of

reference of Remuneration Committee?

9 Shareholders Committee: Whether the name of non-executive director heading the

committee mentioned in the report?

10 Does the Bank mention the name and designation of compliance officer of

Shareholder Committee?

11 Whether the number of shareholders‟ complaints received so far mentioned by the

Bank

12 If the number of complaints not solved to the satisfaction of shareholders mentioned?

13 If the Number of pending complaints mentioned by the Bank?

14 General Body meetings: Does the Bank mention the location and time, where last

three AGMs were held?

15 Does the bank display Newspapers wherein results normally published?

16 Disclosures: Whether disclosures on materially significant related party transactions

that may have potential conflict with the interests of bank at large made?

17

Whether following is included in the disclosure: Details of non-compliance by the

company, penalties, and strictures imposed on the company by Stock Exchange or

SEBI or any other statutory authority, on any matter related to capital markets, during

the last three years?

18 Whether the Details of compliance with mandatory requirements and adoption of the

non-mandatory requirements of this clause given?

19 Means of communication: Whether the Quarterly results disclosed?

20 Does the bank disclose name of the website, where displayed?

21 Whether the official news releases has been disclosed?

22 Whether management discussion and analysis is a part of annual report or not?

23 Whether the Bank has updated General Shareholder information related to: AGM :

Date, time and venue?

24 Financial year

108

25 Date of Book closure

26 Dividend Payment Date

27 Listing on Stock Exchanges Stock Code

28 Market Price Data : High, Low during each month in last financial year

29 Performance in comparison to broad-based indices such as BSE Sensex, CRISIL

index etc.

30 Registrar and Transfer Agents Share Transfer System

31 Distribution of shareholding Dematerialization of shares and liquidity

32 Branch locations and address of correspondence

33 Whether there is disclosure about risk management?

34 Whether segment wise or product wise performance part of MD&A?

35 Whether Auditor‟s certificate provided by the Bank?

36 Whether CEO or CFO certificate provided by the Bank?

The above table displays the hundred percent disclosures of the CG variable of five banks for

seven years. There are thirty six variables which has hundred percent disclosures for all the

seven years.

The checklist method helped to determine the varied percentage of mandatory, non

mandatory and other corporate governance requirements. Out of forty five variables of

mandatory disclosure requirements fifteen variables is showing varied disclosure level.

Bank‟ philosophy of the code displays hundred percent disclosures which envisages and

expects:-adherence to the highest standards of honest and ethical conduct, including proper

and ethical procedures in dealing with actual or apparent conflicts of interest between

personal and professional relationships.

Full, fair, accurate, sensible, timely and meaningful disclosures in the periodic reports

required to be filed by the bank with government and regulatory agencies.

Compliance with applicable laws, rules and regulations.

To address misuse or misappropriations of the bank‟s assets and resources.

The highest level of confidentiality and fair dealing within and outside the banks.

On the basis of the percentage wise analysis of the disclosure of requirements it was found

that following attributes of the corporate governance didn‟t have hundred percent disclosures

for the period 2005 to 2012.

The procedure for postal ballot has the least disclosure made by the bank. The person

who conducts the postal ballot exercise and the special resolution proposed to be

109

conducted through postal ballot shows 20% disclosures however the details of voting

pattern shows 34.29%. The presentation made to the institutional investors or to the

analysts is displaying 40% for seven years. GDRs/ADRs/Warrants or any Convertible

instruments, conversion date and likely impact on equity shows 60% disclosures.

Whistle Blower policy and affirmation that no personnel have been denied access to the

audit committee has 62.86% disclosures, number of other Boards or Board Committees

in which he/she is a member or a Chairperson shows 80% disclosures, disclosures on

materially significant related party transactions that may have potential conflict with the

interests of bank at large made shows 80% disclosures, details of remuneration to all the

directors, as per format in main report has 82.86%, special resolutions passed in the

previous 3 AGMs been recorded has 85.71% disclosures, composition, name of

members and chairperson of remuneration committee mentioned has 91.43%

disclosures, Bank has mentioned the attendance during the year shows 94.29%

disclosure, Remuneration policy of Bank mentioned in the report shows 97.14%

disclosure the details of compliance with mandatory requirements and adoption of the

non-mandatory requirements of this clause given shows 97.14% disclosures.

In the year 2011-12 the mandatory disclosure level of Punjab national bank is highest.

On the basis of the corporate governance report of five banks following non mandatory

variable is been analyzed. In case of non-executive chairman may be entitled to maintain a

chairman's office at the company's expense its is showing 97.14% disclosures, Whether they

are allowed reimbursement of expenses incurred in performance of his duties shows 77.14%

disclosures.

Though non mandatory but it is desirable to have hundred percent disclosures for effective

governance there is no clear disclosure about the independent director which is showing 0%.

The requirements related to board and the shareholder‟s right is showing 97.14% disclosure.

Whether the boards have set up a remuneration committee to determine on their behalf and

on behalf of the shareholders with agreed terms of reference, the company's policy on

specific remuneration packages for executive directors including pension rights and any

compensation payment shows 97.14% disclosures, in case of variable does the Bank have it

provisions to avoid conflicts of interest, the remuneration committee, which would determine

the remuneration packages of the executive directors may comprise of at least three directors,

all of whom should be non-executive directors, the Chairman of committee being an

110

independent director has 62.86% disclosure, members of the remuneration committee be

present at the meeting has 54.29 % disclosure, half-yearly declaration of financial

performance including summary of the significant events in last six-months has been sent to

each individual shareholders has 97.14% disclosure, Bank may move towards a regime of

unqualified financial statements stated in relation to the audit qualification shows 62.86%

disclosure, training for its Board members shows 60.00% disclosure, Pear Group of BOD to

evaluate the performance of non-executive directors shows 57.14% disclosure.

In case of other corporate governance requirements there are four items which have shown

hundred percent disclosures but other six variables is showing less than hundred percent

disclosures. Though the requirement is non mandatory but it is desirable to have disclosure of

above requirements for the effective governance. Is the Chairman of the Board Executive or

Non Executive mentioned shows 97.14% disclosure and if the Profile of directors appointed

during the year mentioned shows 80 % disclosure. Nomination committee plays a vital role

for better governance has 45.71% disclosure level. There is least disclosure about the

independent directors with 20%. It is important have the code of conduct which has only

68.67% of disclosure.

Out of the five bank analyzed each Bank has taken various innovative Corporate Social

Responsibilities initiatives which contributes to the society. It is found that all the five bank

has given ample importance for rural development, education, self employment, healthcare as

important Corporate Social Responsibilities (CSR) initiatives. CSR initiatives show 80%

disclosure level.

4.2.2 CSR INITIATIVES OF NATIONALISED BANKS

Banks consider CSR as an investment in society. An important facet of the corporate

governance is active participation in the community development programmes with corporate

social responsibility. Banks are engaging themselves in various CSR activities which is

indirectly contributing to their increased market performance Rural development is taken as a

major initiatives by the Nationalised banks, apart from education, employment and women

empowerment. Banks need to have proper disclosure and clear CSR strategy for its better

performance.

Canara Bank has hundred percent disclosure level, Corporation bank and Punjab national

bank displays 85.71%, Vijaya Bank has 71.43% since it took the disclosure of CSR initiative

111

from 2006 onwards, and the disclosure level is low in Syndicate Bank due to taking up the

disclosure of CSR initiatives from 2008 onwards. Banks have been doing various activities

which are socially responsible but having proper disclosure in the relevant field helps in

better performance of the Bank in terms of improving its goodwill and reputation.

Important CSR initiatives of bank are analyzed below.

Canara Bank: So far, the Bank has assisted 487 doctors to set up rural clinics in remote

rural areas. The Bank pioneered an innovative scheme called Rural Service Volunteers in

the year 1982. The Jalayoga Scheme was introduced in the year 1996 to commemorate

Bank's 90th year of establishment to provide safe drinking water to Scheduled

caste/Scheduled Tribes/Backward communities of rural areas coming under lead districts

of the Bank. It has set up Rural Resource Development Centre. It has sponsored a Retail

Mobile Marketing Van for Display cum Sale of House hold products, articles made by

Self - Help Groups, Small women entrepreneurs, Artisans, Self Employed women etc.

Canara Bank has been conferred award for its initiatives.

Punjab National Bank: Bank has taken various CSR initiatives such as development of

village Sacha Khera as a Model Village, vocational trainings 3 months‟ duration trainings

on sewing, cutting and embroidery for ladies. Besides, trainings on preparation of home

made goods like pickle, papad etc. are also being organized with the help of NGOs. PNB

regards Corporate Social Responsibility (CSR) as an investment in society. It has

undertaken corporate volunteering where a growing number of our employees are

committed to civic leadership and responsibility.

The Bank has set up numerous training institutes and counselling centres to eradicate

unemployment. It has taken initiatives in health care and education too. It is bagging CSR

awards consistently for its rural development, Self employment, community services,

Sports, Women empowerment and environment concerns. It has disclosed a separate

report on CSR from 2010 onwards.

Corporation Bank: The Bank has also involved itself with several initiatives in the field

of Education, development of infrastructure, rural development, Health and Hygiene and

Promotion of Art and Culture. During the year the Bank initiated several welfare

measures focusing on the basic needs and for the larger benefit of the society, to fulfill its

commitment to social priorities as a responsible.

112

The Bank has extended donations to Jaycees Society for Rehabilitation of the

Handicapped, a school for special children and Malabar Rehabilitation Centre for

Handicapped, Payyanur, a rehabilitation centre for physically handicapped. As part of its

Centenary celebrations, the Bank had launched the project of setting up 100 rural libraries

at identified rural centres across the country, to be developed as Rural Knowledge

Centres, in association with local Village Panchayats/Educational institutions. It has

announced scholarships to pursue higher studies too. The Bank has taken up the project

of developing infrastructure in the campus of Mangalore University-Mangala Gangothri

and extended financial support to Ramakrishna Mission, Mumbai for organizing youth

oriented projects. The Bank also funded the Armed Forces Flag Day in Mumbai and

Mangalore.

Syndicate bank :Syndicate bank has also taken various CSR initiatives such as cleaning

village tanks and ponds, helping flood victims, supporting the cause of gift of vision that

is corneal transplantation in rural areas, providing educational facilities for poor students

in rural areas, serving policemen and their families, free medical facilities for poor by

donating artificial limbs, wheel chair and providing gainful employment for tribal‟s.

Uplift of downtrodden, education for poor students, distribution of free meal to school

children, integrated tribal development, rehabilitation of Endosulfan victims are some of

the other CSR activities of the bank.

Vijaya Bank: Vijaya Bank has earmarked its CSR fund towards rural development,

women empowerment, Self employment, healthcare and literature. It has established rural

Health Centre and provided free services of a doctor and medicines at a Capital cost of

Rs. 10000.00 and a recurring cost of Rs. 15000 per month for each village, adoption of

one girl child with Educational expenses borne by the Bank up to graduation level,

construction of Bus Shelter in the village incurring a cost of Rs. 2 lakh per village,

providing of water tank and construction of flag mast to village schools at a cost of Rs.

20,000 per village. Bank has constructed a bus shelter a cost of Rs. 1.50 Lakhs in

Wazirpur village in Rajasthan state. Besides, Bank also was instrumental in setting up a

Computer training centre at Mangalore for imparting free computer training to the under

privileged children. Bank also provided Cots and essential furniture items to Daari Deepa

Old Age Home at Ramnagara district of Karnataka State. Vijaya Bank has also been

awarded for its CSR initiatives.

113

Out of the five bank analyzed each Bank has taken various innovative CSR initiatives

which contributes to the society. It is found that all the five bank has given ample

importance for rural development, education, self employment, healthcare as important

CSR initiatives.

4.3 ANALYSIS OF BANKS PERFORMANCE

The main focus of this study is to examine the relationship between corporate governance in

the Banks and the Bank performance. An attempt has been made to identify the relationship

between corporate governance proxies and the firm value. In the present study the three

variables are studied. Return on Assets, Capital adequacy ratio and Non-performing Assets

are proxies for asset quality, profitability, and as a measure of supervision of the corporate

governance mechanism. It is helpful in effective supervision of banks, it helps in taking

prompt corrective action and for better compliance.

Capital Adequacy Ratio: It is the ratio of capital fund to risk weighted assets expressed in

percentage terms and is used to check the availability of the bank‟s capital to cover for its

risk-weighted assets. Banks need to maintain CAR at 9% and a higher level of capital funds.

The important objective of CAR is to strengthen the soundness and stability of the banking

system. It is also termed as CRAR that is capital to risk weighted assets ratio. It can be

calculated as follows

TIER 1 Capital = (paid up capital + statutory reserves + disclosed free reserves) - (equity

investments in subsidiary + intangible assets + current & b/f losses)

TIER 2 Capital =Undisclosed Reserves + General Loss reserves + hybrid debt capital

instruments and subordinated debts

Risk can either be weighted assets or the respective national regulator's minimum total capital

requirement. If using risk weighted assets – fund based assets such as cash, loans,

investments and other assets then degrees of credit risk expressed as percentage weights have

been assigned by RBI to each such asset.

http://en.wikipedia.org/wiki/Risk

http://en.wikipedia.org/wiki/Asset

http://en.wikipedia.org/wiki/Bank_regulation

http://en.wikipedia.org/wiki/Financial_capital


114

Return on assets (ROA): The return on assets percentage shows how profitable a company's

assets are in generating revenue. ROA is computed as,

ROA=

Return on assets is an indicator of how profitable a company is before leverage and is

compared with companies in the same industry. Since the figure for total assets of the

company depends on the carrying value of the assets, some caution is required for companies

whose carrying value may not be correspondence to the actual market value. Return on assets

is a common figure used for comparing performance of financial institutions (such as banks),

because the majority of their assets will have a carrying value that is close to their actual

market value. Total assets include fixed assets and assets having interest overdue for more

than 90 days. Banks need to maintain ROA at 0.25%. Higher the proportion of average

earnings assets, better would be the resulting return on assets.

Non Performing Assets (NPA): A non performing asset is used to measure the overall

quality of the bank‟s loan book. Banks need to maintain NPA at 10%. It is calculated as

follows,

NPA=

*Assets having interest overdue for more than 90 days.

With a view to moving towards international best practices and to ensure greater

transparency, 90 days overdue norms for identification of NPAs have been made applicable

from the year ended March 31, 2004. There are certain relaxations mentioned for Tier I

Banks and Tier II Banks as defined below, with effect from March 31, 2004.

As on 2011-12 Nationalised banks had the ROA of 0.88, Capital adequacy ratio of 13.03 and

the NPA of 1.43. According to RBI report 2012 Indian banks need to maintain ratios with the

following benchmarking standard with ROA 0.25 percent, CAR with 9 percent and NPA with

10%.

In order to analyze the effect of corporate governance disclosure level to that of bank

performance in the present study these three dependent variables i.e., Return on Assets,

Capital Adequacy Ratio and Non-performing Assets for the period from 2005 to 2012 is

used.

http://en.wikipedia.org/wiki/Profit_(accounting)


http://en.wikipedia.org/wiki/Revenue

http://en.wikipedia.org/wiki/Gearing_(finance)

http://en.wikipedia.org/wiki/Book_value

http://en.wikipedia.org/wiki/Market_value

http://en.wikipedia.org/wiki/Financial_institution

http://en.wikipedia.org/wiki/Bank

115

Table: 4.19

NPA as percentage to net advances

Bank/Year 2005

-06

2006-

07

2007

-08

2008-

09

2009

-10

2010-

11

2011

-12 Mean SD CV

Corporation

Bank 0.64 0.47 0.32 0.29 0.31 0.46 0.87 0.48 0.2 0.41

Canara Bank 1.12 0.94 0.84 1.09 1.06 1.1 1.46 1.09 0.18 0.16

Punjab

National

Bank

0.29 0.76 0.64 0.17 0.53 0.85 1.52 0.68 0.41 0.6

Syndicate

Bank 0.86 0.76 0.97 0.77 1.07 0.97 0.96 0.91 0.11 0.12

Vijaya Bank 0.85 0.59 0.57 0.82 1.4 1.52 1.72 1.07 0.44 0.41

Mean 0.75 0.7 0.67 0.63 0.87 0.98 1.31

SD 0.28 0.16 0.22 0.34 0.4 0.34 0.33

CV 0.37 0.23 0.34 0.55 0.45 0.35 0.25

The non performing assets have a major impact on profitability and liquidity of the banks

which in long run affect the goodwill and brand image leading to investor withdrawing their

funds. Based on the mean value Canara bank is showing highest value of 1.09 and

Corporation bank with least mean value 0.48.

From the above table we can conclude that Canara Bank shows a high level of NPA

compared to other banks and Corporation Bank has shown good sign of reduction in the NPA

level for the period of 2005 to 2012. The average level of NPA in the year was 0.75 which

has increased to 1.31 in the year 2012.

116

Table 4.20

Capital Adequacy Ratio

Bank/Year 2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12 Mean SD CV

Corporation

Bank 13.92 12.76 12.09 13.61 15.37 14.11 13 13.55 0.99 0.07

Canara Bank 11.22 13.5 13.25 14.1 13.43 15.38 13.76 13.52 1.15 0.08

Punjab National

Bank 11.95 12.29 13.46 14.03 14.16 14.11 13 13.29 0.84 0.06

Syndicate Bank 11.73 11.74 11.82 12.68 12.7 13.04 12.24 12.28 0.5 0.04

Vijaya Bank 11.94 11.21 11.22 13.15 12.5 13.88 13.06 12 0.75 0.06

Mean 12.15 12.3 12.37 13.51 13.63 14.16 13

SD 0.92 0.79 0.86 0.54 1.05 0.83 0.54

CV 0.08 0.06 0.07 0.04 0.08 0.06 0.04

Capital is essential and critical to the perpetual continuity of a bank as a going concern.

Banks with reasonable CRAR can absorb the unexpected losses easily and their cost of

funding is also reduced which ultimately improve the profitability of banks. Table highlights

the capital adequacy ratio of five banks for seven years. Corporation bank‟s average capital

adequacy ratio for seven year is 13.55 and Vijaya Bank average capital adequacy ratio is 12.

On the basis of the Capital adequacy ratio we can conclude that except Vijaya Bank and

Syndicate Bank other three banks has capital adequacy which is more than 13% where the

Corporation Bank shows high level of capital adequacy ratio. There is increase in the capital

adequacy ratio from 12.15% to 14.16% from 2005 to 2011 however in 2012 capital adequacy

ratio has declined to 13%.

117

Table 4.21

Return on Assets ( ROA In Percentage)

Bank/Year 2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12 Mean SD CV

Corporation

Bank 1.24 1.17 1.29 1.24 1.24 1.21 1.06 1.21 0.07 0.06

Canara

Bank 1.13 0.98 0.92 1.06 1.3 1.42 0.95 1.11 0.17 0.16

Punjab

National

Bank

1.09 1.03 1.15 1.39 1.44 1.34 1.19 1.23 0.15 0.12

Vijaya

Bank 0.45 0.92 0.75 0.59 0.76 0.72 0.66 0.69 0.14 0.2

Syndicate

Bank 0.91 0.91 0.88 0.81 0.62 0.76 0.81 0.81 0.1 0.12

Mean 0.96 1 1 1.02 1.07 1.09 0.93

SD 0.28 0.09 0.19 0.29 0.32 0.29 0.19

CV 0.29 0.09 0.2 0.28 0.3 0.27 0.2

The above table shows the ratio of return on total assets for the period of 2005-12 for five

banks. The average return of the bank is high in case of Punjab National Bank i.e., 1.23% and

least in case of Vijaya Bank. The ratio in terms of dispersion that is Coefficient of Variation

(CV) shows more variable in case of Vijaya Bank and less variable in case of Corporation

Bank.

Therefore in terms of dispersion Vijaya Bank is less consistent and Corporation Bank is more

consistent. The average return of banks was 0.96% in 2005-06 which has decreased to 0.93%

in 2012.

118

Table 4.22

Descriptive Statistics of dependent variables

Based on the descriptive statistics the mean value of the all the five banks is observed in the

below table.

VARIABLE Minimum Maximum Mean Std. Deviation

ROA Corporation Bank 1.06 1.29 1.2071 .07432

ROA Canara Bank .92 1.42 1.1086 .18872

ROA Vijaya Bank .45 .92 .6929 .14762

ROA PNB 1.03 1.44 1.2329 .15777

ROA Syndicate Bank .62 .91 .8143 .10277

CRA Corporation Bank 12.09 15.37 13.5514 1.06651

CRAR Canara Bank 11.22 15.38 13.5200 1.23996

CRAR Vijaya Bank 11.21 13.88 12 1.01775

CRAR PNB 11.95 14.16 13.2857 .90235

CRAR Syndicate Bank 11.73 13.04 12.2786 .53561

NPA Corporation Bank .29 .87 .4800 .21166

NPA Canara Bank .84 1.46 1.0871 .19311

NPA Vijaya Bank .57 1.72 1.0671 .46995

NPA PNB .17 1.52 .6800 .44294

NPA Syndicate Bank .76 1.07 .9086 .11539

The above table depicts the three important triggers ROA, CAR and NPA level of five banks

for seven years. It shows the mean value and the standard deviations. Return on assets of

PNB is highest with mean value of 1.2329 and is lowest for Vijaya Bank with mean value of

.6929. Capital adequacy ratio of Corporation bank is highest with the mean value of 13.5514

and the Vijaya bank has lowest mean value of 12. NPA of Corporation banks shows the mean

value of .4800 which is better compared to other banks and the Canara bank has the highest

NPA level with mean value of 1.0871.

119

4.4 CORPORATE GOVERNANCE DISCLOSURE LEVEL AND BANK

PERFORMANCE

In order to examine the relationship between corporate governance disclosure level and the

performance of the bank‟s annual report the bank performance indicators that is ROA, CAR,

NPA were used and Corporate governance disclosure level of five banks was determined

based on the Corporate governance index prepared using 65 requirements that is mandatory,

non mandatory and other corporate governance requirements.

H0: The extent of corporate governance disclosure level and bank performance is not

related

Table: 4.23

Corporation Bank- Correlation Matrix

CGDI (Corporate governance disclosure index) is expected to have a negative relationship

with bank‟s NPA. To test this relationship Pearson Correlation Matrix analysis was

performed with CGDI and bank‟s NPA for the period 2005–2012. The analysis indicated a

partial strong positive correlation with the selected variables, i.e. r = -0.31798 & p-value =

0.487052 Therefore from the above table it is inferred that in case of Corporation Bank ,

YEAR NPA CAR ROA CGDL CGDL-NPA CGDL-CAR CGDL-ROA

2005-

06 0.64 13.92 1.24 52 r p r p r p

2006-

07 0.47 12.76 1.17 56

-

0.31798 0.487052 -0.01191 0.979782

-

0.09851 0.833577

2007-

08 0.32 12.09 1.29 59

2008-

09 0.29 13.61 1.24 59

2009-

10 0.31 15.37 1.24 59

2010-

11 0.46 14.11 1.21 59

2011-

12 0.87 13 1.06 59

r - Correlation Coefficient, p - Significance Value at 5%

120

CGDI & NPA are showing the same trend & they both move in the same direction exhibiting

a negative relationship. This result is matching with the general expectation which suggests

that, as the CGDI increases the resultant NPA should come down & indicates an

improvement in performance.

CGDI is expected to have a positive relationship with bank‟s CRAR. To test this relationship

Pearson Correlation Matrix analysis was performed with CGDI and bank‟s CRAR for the

period 2005–2012. The analysis indicated a negative correlation with the selected variables,

i.e. r = -0.01191& p-value = 0.979782. This result is not matching with the general

expectation which suggests that, as the CGDI increases the resultant CRAR should increase

& reflect an improvement in performance.

CGDI is expected to have a positive relationship with bank‟s ROA. To test this relationship

Pearson Correlation Matrix analysis was performed with CGDI and bank‟s ROA for the

period 2005–2012. The analysis indicated a partial strong positive correlation with the

selected variables, i.e. r = -0.09851 & p-value = 0.833577. Therefore from the above table it

is inferred that in case of Corporation Bank CGDI & ROA are not showing the same trend &

they both are not moving in the same direction. They are exhibiting a negative relationship.

This result is not matching with the general expectation which suggests that, as the CGDI

increases the resultant ROA should increase which helps in the improvement in performance.

121

Table 4.24

Canara Bank- Correlation Matrix

YEAR NP

A CAR

RO

A

CGD

L CGDL-NPA CGDL-CAR CGDL-ROA

2005-

06 1.12

11.2

2 1.13 55 r p r p r p

2006-

07 0.94 13.5 0.98 55

0.583588 0.16897 0.65129 0.113047 0.48858 0.265896

2007-

08 0.84

13.2

5 0.92 55

2008-

09 1.09 14.1 1.06 56

2009-

10 1.06

13.4

3 1.3 56

2010-

11 1.1

15.3

8 1.42 56

2011-

12 1.46

13.7

6 0.95 56


CGDI is expected to have a negative relationship with bank‟s NPA. To test this relationship

Pearson Correlation Matrix analysis was performed with CGDI and bank‟s NPA for the


selected variables, i.e. r = 0.583588 & p-value = 0.16897 Therefore from the above table it is

inferred that in case of Canara Bank , CGDI & NPA are not showing the same trend & they

both move don‟t in the same direction exhibiting a negative relationship. This result is not

matching with the general expectation which suggests that as the CGDI increases the

resultant NPA should come down & indicates an improvement in performance.

122




selected variables, i.e. r = 0.651291& p-value = 0.113047. Therefore from the above table it

is inferred that in case of Corporation bank, CGDI & CRAR are showing the same trend &

they both move in the same direction exhibiting a positive relationship. This result is

matching with the general expectation which suggests that, as the CGDI increases the

resultant CRAR should increase & reflect an improvement in performance.




selected variables, i.e. r =0.488588 & p-value = 0.265896. Therefore from the above table it

is inferred that in case of Canara Bank CGDI & ROA are showing the same trend & they

both move in the same direction exhibiting a moderate positive relationship. This result is


resultant ROA should increase but the improvement in performance is statistically not

significant as it is moderate in its nature.

123

Table 4.25

Punjab National Bank- Correlation Matrix

YEAR NPA CAR ROA CGDL

CGDL-NPA CGDL-CAR CGDL-ROA

r p r p r p

2005-

06 0.29 11.95 1.09 49

0.744 0.054 0.562 0.188 0.399 0.374

2006-

07 0.76 12.29 1.03 53

2007-

08 0.64 13.46 1.15 55

2008-

09 0.17 14.03 1.39 55

2009-

10 0.53 14.16 1.44 55

2010-

11 0.85 14.11 1.34 60

2011-

12 1.52 13 1.19 61





selected variables, i.e. r = 0.744 & p-value = 0.054. Therefore from the above table it is

inferred that in case of Punjab National bank, CGDI & NPA are showing the same trend &

they both move in the same direction exhibiting a positive relationship. This result is not


resultant NPA should come down & indicates an improvement in performance.

124





inferred that in case of Punjab National bank, CGDI & CRAR are showing the same trend &

they both move in the same direction exhibiting a positive relationship. This result is


resultant CRAR should increase & reflect an improvement in performance.





inferred that in case of PNB CGDI & ROA are showing the same trend & they both move in

the same direction exhibiting a moderate positive relationship. This result is matching with

the general expectation which suggests that, as the CGDI increases the resultant ROA should

increase but the improvement in performance is statistically not significant as it is moderate

in its nature.

125

Table 4.26

Vijaya Bank- Correlation Matrix




selected variables, i.e. r = 0.204 & p-value = 0.661.Therefore from the above table it is

inferred that in case of Vijaya Bank , CGDI & NPA are showing the same trend & they both

move in the same direction exhibiting a negative relationship. This result is not matching

with the general expectation which suggests that, as the CGDI increases the resultant NPA

should come down. CGDI is expected to have a positive relationship with bank‟s CRAR. To

test this relationship Pearson Correlation Matrix analysis was performed with CGDI and

bank‟s CRAR for the period 2005–2012.

YEAR NPA CAR ROA CGDL CGDL-NPA CGDL-CAR CGDL-ROA

2005-

06 0.85 11.94 0.45 48 r p r p r p

2006-

07 0.59 11.21 0.92 50

0.204 0.661 0.209 0.653 0.725 0.065

2007-

08 0.57 11.22 0.75 50

2008-

09 0.82 13.15 0.59 50

2009-

10 1.4 12.5 0.59 50

2010-

11 1.52 13.88 0.72 50

2011-

12 1.72 13.06 0.66 50


126

The analysis indicated a partial strong positive correlation with the selected variables, i.e. r =

0.209 & p-value = 0.653. Therefore from the above table it is inferred that in case of Vijaya

bank, CGDI & CRAR are showing the same trend & they both move in the same direction

exhibiting a positive relationship. This result is matching with the general expectation which

suggests that, as the CGDI increases the resultant CRAR should increase & reflect an

improvement in performance.




selected variables, i.e. r = 0.725 & p-value = 0.065. Therefore from the above table it is

inferred that in case of Vijaya Bank‟s CGDI & ROA are showing the same trend & they both

move in the same direction exhibiting a moderate positive relationship. This result is


resultant ROA should increase.

127

Table: 4.27

Syndicate Bank- Correlation Matrix

YEAR NPA CAR ROA CGDL CGDL-NPA CGDL-

CAR CGDL-ROA

2005-

06 0.86 11.73 0.91 42 r p r p r p

2006-

07 0.76 11.74 0.91 52

0.282 0.539 0.571 0.18 -0.471 0.285

2007-

08 0.97 11.82 0.88 52

2008-

09 0.77 12.68 0.81 53

2009-

10 1.07 12.7 0.62 53

2010-

11 0.97 13.04 0.76 55

2011-

12 0.96 12.24 0.81 56




period 2005–2012. The analysis indicated a positive correlation with the selected variables,

i.e. r = 0.282 & p-value = 0.539. Therefore from the above table it is inferred that in case of

Syndicate Bank, CGDI & NPA are showing the same trend & they both move in the same

direction exhibiting a negative relationship.

This result is not matching with the general expectation which suggests that, as the CGDI

increases the resultant NPA should come down. CGDI is expected to have a positive

relationship with bank‟s CRAR. To test this relationship Pearson Correlation Matrix analysis

was performed with CGDI and bank‟s CRAR for the period 2005–2012. The analysis

indicated a partial strong positive correlation with the selected variables, i.e. r = 0.571 & p-

value = 0.18. Therefore from the above table it is inferred that in case of Syndicate bank,

CGDI & CRAR are showing the same trend & they both move in the same direction

exhibiting a positive relationship. This result is matching with the general expectation which

128

suggests that, as the CGDI increases the resultant CRAR should increase & reflect an

improvement in performance. CGDI is expected to have a positive relationship with bank‟s

ROA. To test this relationship Pearson Correlation Matrix analysis was performed with

CGDI and bank‟s ROA for the period 2005–2012. The analysis indicated a weak correlation

with the selected variables, i.e. r = -0.471 & p-value = 0.285. Therefore from the above table

it is inferred that in case of Syndicate Bank CGDI & ROA are not showing the same trend &

they both are not moving in the same direction exhibiting a negative relationship. This result

is not matching with the general expectation which suggests that, as the CGDI increases the

resultant ROA should increase

When corporate governance disclosure level of individual banks with the bank

performance is correlated there is varied. Using the bank average the correlation results

is shown below.

Table: 4. 28

Bank average- CGDL, ROA, CAR, NPA

Bank CGDL ROA CAR NPA

Corporation Bank 57.57 1.21 13.55 0.48

Canara Bank 55.57 1.11 13.52 1.09

Punjab National Bank 55.43 1.23 13.29 0.68

Vijaya Bank 49.71 0.69 12 1.07

Syndicate Bank 51.86 0.81 12.28 0.91

Table 4.28 displays the bank average of the corporate governance disclosure level and the

three indicators of bank performance which is used to test the hypothesis. Using the above

mean value with the help of SPSS software the bivariate correlation is used to test whether

there is strong or weak correlation between the corporate governance disclosure level and the

bank performance.

129

Table: 4. 29

Correlations – CGDL and Bank Performance

CGDL ROA CAR NPA

CGDL

Pearson Correlation 1 .959**

.972**

-.679

Sig. (2-tailed) .010 .006 .208

N 5 5 5 5

ROA

Pearson Correlation .959**

1 .959**

-.659

Sig. (2-tailed) .010 .010 .226

N 5 5 5 5

CAR

Pearson Correlation .972**

.959**

1 -.510

Sig. (2-tailed) .006 .010 .380

N 5 5 5 5

NPA

Pearson Correlation -.679 -.659 -.510 1

Sig. (2-tailed) .208 .226 .380

N 5 5 5 5

**. Correlation is significant at the 0.01 level (2-tailed).

Based on the mean value of the bank performance and the corporate governance disclosure

level the following results are arrived to check the correlation between the two variables.

Table highlights the correlation between the corporate governance disclosure level and the

bank performance. Using the bivariate correlation in SPSS the results were obtained to check

the relation and strength between the corporate governance disclosure level and the three

triggers of bank performance. However there is a positive correlation with respect to return

on assets and the corporate governance disclosure level with the correlation coefficient of r=

.959*. Corporate governance disclosure level and the Capital adequacy ratio shows the

correlation of .972*

and the Corporate governance disclosure level with that of NPA shows r=

-.679. As per the desired results as the corporate governance disclosure level increases banks

non performing assets decreases. From the above results it can be inferred that the banks with

good corporate governance disclosure level have good performance.

Thus researcher accepts the alternative hypothesis and infers that the good corporate

governance disclosure level helps in better bank performance. Disclosure and transparency

are key indicators of corporate governance. Good disclosure in banks helps banks to increase

the percentage of return on asset, capital adequacy ratio and decrease its non performing

assets.

130

4.5 ANALYSIS OF COMPOSITION OF THE BOARD IN THE CHOSEN BANKS:

The board structure of nationalised banks is based on Banking Companies {Acquisition &

Transfer of undertaking} Act 1970 and Nationalised Bank (Management & Miscellaneous

Provision) Scheme 1970. The board of director of banks shall have an optimum combination

of executive director and non-executive directors with not less than fifty percent of the board

of directors comprising of non executive directors. Under the clause 49 of listing agreement

there is need of seven members out of which four are to be independent directors. In the

below table the composition of board of directors both executive and non-executive director

is highlighted. On the basis of classification of board of directors into executive and non

executive the size of the board is studied for five banks for seven years.

Table: 4. 30

Corporation Bank- Proportion of Executive and Non Executive Directors

Sl.

No. Directors

2005

-06

2006

-07

2007

-08

2008

-09

2009-

10

2010

-11

2011

-12 Average

1 Executive 2 2 1 2 3 3 3 2.29

2 Non –

Executive 10 8 9 12 9 10 8 9.43

3 Total 12 10 10 14 12 13 11 11.71

The above shows that Corporation bank has shown varied number of proportion of

director from 2005 to 2012. The bank shows average number of executive director to be 2.29

and the non executive director is 9.43.

131

Table: 4. 31

Canara Bank- Proportion of Executive and Non Executive Directors

Sl.

No Directors

2005-

06

2006

-07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12 Average

1 Executive 1 1 2 2 2 2 2 1.71

2 Non –

Executive 11 9 11 11 9 9 9 9.86

3 Total 12 10 13 13 11 11 11 11.57

From the above it can be inferred that Canara bank highlights average number of executive

director to be 1.71 and Non –Executive is 9.86 for seven years 2005-2012.

Table: 4. 32

PNB- Proportion of Executive and Non Executive Directors

Sl.

No. Directors

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12 Average

1 Executive 2 2 3 3 3 3 3 2.71

2 Non –

Executive 7 8 9 11 10 10 9 9.14

3 Total 9 10 12 14 10 13 12 11.43

Punjab national bank displays the average number of executive director to be 2.71 and the

non executive director to be 9.14. The average number of director for seven years is 11.43.

132

Table: 4. 33

Vijaya Bank- Proportion of Executive and Non Executive Directors

Sl.

No.

Directors 2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12 Average

1 Executive 2 2 2 2 2 2 2 2

2 Non –

Executive 8 7 8 11 10 9 9 8.85714

3 Total 10 9 10 13 12 11 11 10.8571

Vijaya Bank displays the average number of executive director to be 2 and non executive

director to be 8.857 and the average number of directors to be 10.8571.

Table: 4. 34

Syndicate Bank- Proportion of Executive and Non Executive Directors

Sl.

No. Directors

2005-

06

2006-

07

2007-

08

2008

-09

2009-

10

2010-

11

2011-

12 Mean

1 Executive 1 1 1 2 2 2 2 1.57143

2 Non –

Executive 6 11 11 11 6 9 6 8.57143

3 Total 7 12 12 13 8 11 8 10.1429

Syndicate bank highlights the average number of executive director to be 1.57 and average

number of non executive director to be 8.57 where the total number of director is 10.1429.

Table: 4. 35

Total Number of Directors

Sl

No.

Name of the

Bank

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12 AVERAGE

1 Corporation

Bank 12 10 10 14 12 13 11 11.7143

2 Canara Bank 12 10 13 13 11 11 11 11.5714

3 PNB 9 10 12 14 10 13 12 11.4286

4 Vijaya Bank 10 9 10 13 12 11 11 10.8571

5 Syndicate

Bank 7 12 12 13 8 11 8 10.1429

Table 4.35 highlights the mean value of the number of directors in five banks. Corporation

Bank displays a higher mean value 11.7143 followed by Canara Bank with 11.5714 and PNB

with 11.4286.

133

4.6 NON EXECUTIVE DIRECTORS AND BANK PERFORMANCE

Non executive directors contribute significantly in the decision making process of the board

by providing independent judgement and wider perspectives. Non executive directors need to

ensure that there are no actual and perceived conflicts of interest. Proportion of non executive

directors in the board and its impact on the bank performance is studies in this section

H0: The proportion of non executive directors is not significant to the bank performance

Board of directors is one of the most vital internal governance mechanism which acts as a

bridge between the aspirations of the shareholders and managers. There are mixed views in

various studies in relation to the relation between board size and the performance however in

the present study the presence of non executive directors who are very important to bring in

their rich experience to the management help in the better management of banks.

Non executive directors (NED) contribute significantly in the decision making

process of the board by providing independent judgement and wider perspectives. Non

executive directors need to ensure that there is no actual and perceived conflict of interest.

There are ample research based on the Non executive directors and bank performance. The

present study tries to check the relation and strength between the non executive director and

the bank performance. Using bivariate correlation test the relation between the proportion of

the non executive director and the bank performance with the three triggers RAO, CAR and

NPA was measured which is presented below.

Table: 4.36

Bank Average of Number of Non Executive Directors in the Board

BANK 2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12 AVERAGE

Corporation Bank 10 8 9 12 9 10 8 9.43

Canara Bank 11 9 11 11 9 9 9 9.86

PNB 7 8 9 11 10 10 9 9.14

Vijaya Bank 8 7 8 11 10 9 9 8.86

Syndicate Bank 6 11 11 11 6 9 6 8.57

Average 8.4 8.6 9.6 11.2 8.8 9.4 8.2 9.17

134

Table: 4. 37

Bank Average- NED, ROA, CAR, NPA

Bank NED ROA CAR NPA

Corporation Bank 9.43 1.21 13.55 0.48

Canara Bank 9.86 1.11 13.52 1.09

Punjab National Bank 9.14 1.23 13.29 0.68

Vijaya Bank 8.85714 0.69 12 1.07

Syndicate Bank 8.57143 0.81 12.28 0.91

The above table shows the bank average of non executive directors and the bank performance

indicators. Canara bank has the highest proportion of non executive directors and

Syndicatebank has the lowest proportion of non executive directors.

Table: 4. 38

Descriptive Statistics- NED, ROA, CAR, NPA

N Minimum Maximum Mean Std. Deviation

NED 5 8.57 9.86 9.1717 .50019

ROA 5 .69 1.23 1.0100 .24536

CAR 5 12.00 13.55 12.9280 .73306

NPA 5 .48 1.09 .8460 .26235

Valid N (listwise) 5

135

Table: 4. 39

Correlation matrix- Proportion of non executive directors and bank performance

NED ROA CAR NPA

NED Pearson Correlation 1 .681 .844 -.058

ROA

Pearson Correlation .681 1 .959**

-.659

Sig. (2-tailed) .206 .010 .226

N 5 5 5 5

CAR

Pearson Correlation .844 .959**

1 -.510

Sig. (2-tailed) .072 .010 .380

N 5 5 5 5

NPA

Pearson Correlation -.058 -.659 -.510 1

Sig. (2-tailed) .927 .226 .380

N 5 5 5 5

Non-Executive Director is expected to have a positive relationship with bank‟s performance.

To test this relationship Pearson Correlation Matrix analysis was performed with Non-

Executive Director and bank‟s performance for the period 2005–2012. The analysis indicated

a positive correlation with the selected variables, with respect to the return on asset and the

number of non executive director r = .681, capital adequacy ratio to that of proportion of non

executive director r is 0.844 and Non performing assets and the proportion of non executive

director the correlation coefficient r is -0.58. All the three variables are showing desired

results. There is a strong correlation between the proportion of the non executive directors

and the bank performance.

It is difficult to apportion responsibility on the non executive directors on the bank

performance since they are not the long term employees and they have the term limits. But in

the present study it is inferred that the contribution of the non executive director is

proportionately good in terms of improving the performance of bank.

Hence alternative hypothesis is accepted which states that the proportion of non

executive directors is significant to the bank performance.

136

4.6.1 BOARD COMMITTEES IN BANKS:

Banks are governed by the board and its committees. Committees are the subset of the board.

It helps to improve the effectiveness and the efficiency in making focused decisions. The

governing principle for the constitution of committees enhances qualitative decision making.

Formation of committees is mandatory and voluntary. Mandatory committees are constituted

in compliance with banking companies Act, circular issued by RBI and Government of India

form time to time. Voluntary committees are based on the requirements of banks for better

governance and implementation. The increase in the number of board committees helps in

sharing the responsibilities, involvement of more members and thus examination of the

matter in more details can be done.

Below is the list of Name of committees of five Banks which were analyzed for the study.

Sl. No. Name of the Committee

1. Audit Committee

2. Management committee

3. IT Committee

4. Risk Management Committee

5. Compensation committee

6. Nominations committee:

7. Credit Approval Committee

8. Remuneration committee

9. Customer Service Committee

10. Power of Attorney committee

11. Insurance Joint Venture Committee

12. Steering Committee for Vision 2013

13. Share Transfer Committee

14. Internal Capital Adequacy Assessment Committee

15. Financial inclusion Committee

16. Committee of the board for selection of business and management or

operational commitment for the Bank

137

17. Preferential Allotment committee

18. Departmental promotion committee

19. Special Committee of Board For monitoring fraud cases

20. Asset Liability Management Committee

21. Shareholders/Investors Grievance Committee

22. Committee to monitor large value frauds

23. HR committee

24. Directors Promotion committee

25. Committee for Para Banking activities

26. Amalgamation Committee

27. Committee for Publicity of Budget

28. Special committee to settle election disputes

29. Share Allotment Committee

30. Committee to dispose appeal by employees

31. Credit Approval Committee

32. COD disciplinary action

33. Appellate Authority & Reviewing Authority Committee

34. Steering Committee for IT vision 2013

35. Insurance joint venture committee

35. COB

36. Selection of Business management and operations committee

It is found that bank boards have found it beneficial to establish certain specialized

committees.

1. Audit Committee: It provides oversight of the bank‟s internal and external auditors,

approving their appointment and dismissal, reviewing and approving audit scope and

frequency, receiving the reports and ensuring that management is taking appropriate

corrective actions in a timely manner to address control weaknesses, non-compliance

with policies, laws and regulations, and other problems identified by auditors. The

independence of this committee can be enhanced when it is comprised of external

board members that have banking or financial expertise.

2. The management committee of the Board is constituted in pursuance of Clause 13 of

Nationalised Banks (Management and Miscellaneous provisions) Scheme, 1980 read

138

with the Directives of the Ministry of Finance, Government of India. A management

committee of the Board has been constituted to consider various business matters of

material significance like approval for introduction of new deposit schemes, sanction

of limits whether fund based or non fund based, compromise/write off, sanction of

capital and revenue expenditure, premises, investments, donations etc.,

3. Information Technology Committee: It is constituted to study various aspects of

information security & information technology initiatives and suggest appropriate

measures to strengthen the same in the Bank. The various IT initiatives including the

IT policy and IT expenditure budget are being placed in the quarterly meetings of IT

committee of the Board for information/ discussion/guidance/approval.

4. Risk management committee: It provides oversight of the senior management‟s

activities in managing credit, market, liquidity, operational, legal and other risks of

the bank. (This role should include receiving from senior management periodic

information on risk exposures and risk management activities).

5. Compensation committee: It provides oversight of remuneration of senior

management and other key personnel and ensuring that compensation is consistent

with the bank‟s culture, objectives, strategy and control environment

6. Nominations committee: Nomination Committee has been constituted as per RBI

guidelines to determine the fulfilment of „fit and proper‟ criteria in respect of

Shareholder Director(s) on the Board of Bank. It provides important assessment of

board effectiveness.

7. Credit Approval Committee (CAC): It is constituted to review the credit proposals.

8. Remuneration Committee: It evaluates performance of whole-time Directors (CMD &

EDs) of the Bank to decide entitlement of incentive.

9. Customer Service Committee: It has been constituted to discharge the following

functions:

o Formulation of a Comprehensive Deposit Policy.

o Issues such as the treatment/settlement of account on death of a depositor.

o Product approval process with a view to ensure its suitability and appropriateness

o Annual Survey of depositor satisfaction.

o Examine any other issue having a bearing on the quality of customer service

rendered

139

10. Power of Attorney Committee: The committee grants power of attorney to officers

and employees of the Bank authorizing them to execute documents and represent on

behalf of the Bank Appellate Authority & Reviewing Authority Committee.

11. Insurance Joint Venture Committee: The Committee has been constituted to decide

and recommend to the Board of the Bank, the future course of action in Insurance

business by the Bank.

12. Steering Committee for Vision 2013: The Committee reviews the progress in

implementation of Vision 2013 document and also deliberates upon the requirements

as warranted in the aspects of plan.

13. Share Transfer Committee: The Committee monitors and approves transfers of

physical shares, issuance of duplicate share certificates/new certificates, transmission

of shares, rematerialisation of shares etc.

14. Internal Capital Adequacy Assessment Committee (ICAAP Committee): The Reserve

Bank of India has formulated guidelines in the lines of the new Capital adequacy

framework introduced by Basel II which seeks to enhance the existing Basel 1

practices with an objective of strengthening the soundness and stability of the

Banking system. The objectives of the policy are to ensure management of internal

capital in accordance with the RBI guidelines, Basel II Guidelines and overall

Corporate governance principles, to describe the process for identification,

assessment, measurement and aggregation of the risks inherent in the Bank‟s business

and operations to ensure that the available capital is commensurate with the Bank‟s

risk profile and to ensure that there is clear assignment of roles and responsibilities for

facilitating the ICAAP.

15. Financial inclusion Committee: The committee infuses external and independent

perspective into the planning process and growth strategy by seeking insight into

various growth initiative of the Bank.

16. Committee of the board for selection of business and management or operational

commitment for the Bank: On the basis of open initiative and response received the

evaluation of these bids to be done by this committee.

17. Preferential Allotment committee: It is to consider the issue and allotment of the

equity share to the Government of India, after the proposal is approved by the

shareholders of the Bank at the extra ordinary meeting.

18. Departmental promotion committee- The committee is formed to consider the issues

related to the departmental promotions.

140

19. Special Committee of Board: For monitoring fraud cases: The Committee has been

constituted for monitoring and review of all fraud cases of 1.00 crore and above

20. Asset Liability Management Committee:

The primary goal of this committee is to evaluate, monitor and approve practices

relating to risk due to imbalances in the capital structure. Responsibilities of the

committees include managing market risk tolerances, establishing appropriate MIS,

reviewing and approving the liquidity and funds management policy at least annually,

approving a contingency funding plan, and reviewing immediate funding needs and

sources-possibly engaging an independent third party to validate the assumptions and

data contained in internally or externally prepared management reports.

21. Shareholders/Investors Grievance Committee: It is constituted for the redressal of

investor grievance.

22. Committee to monitor large value frauds: It is to monitor frauds involving amount of

one crore and above in terms of guidelines of RBI.

23. HR committee: To review the human resource system and practices in the Bank.

24. Committee to settle election dispute: A special committee was formed in terms of

clause (b) and (c) of sub section(3) of section of the Banking Companies(Acquisition

and transfer of undertaking).

25. Directors Promotion committee: The Committee considers candidates for promotions

to Top Executive Grade Scale as well as representations of candidates against non-

approval for promotion to Top Executive Grade Scale.

26. Committee for Para Banking activities: A Sub-committee of the Board on Para

Banking Activities is constituted to increase the Para-Banking activities, including

exploring the possibility of venturing into Insurance and Securities, etc.

27. Amalgamation Committee: A special committee to deal with the amalgamation.

28. Special committee to settle election disputes: A special committee in terms of clause

(b) and (c) and subsection(3) of Section 9 of the Banking Companies(Acquisition and

Transfer of Undertakings )Act, 1980 in order to settle the election dispute is formed

29. Share Allotment Committee: In order to allot share on preferential basis bank has

constituted the committee.

30. The Credit Approval Committee (CAC): This committee exercises the powers of the

Board with regard to each credit proposal up to Rupees four hundred crore in case of

"A" category Banks having business of rupees three lakh crore or more.

141

31. Disciplinary action Committee of Directors to review disposal of Vigilance/Non-

vigilance Disciplinary action cases (COD): The Committee reviews disposal of

vigilance and non-vigilance disciplinary action cases on quarterly basis.

32. Appellate Authority Appellate Authority & Reviewing Authority Committee: The

committee has been constituted to act as Appellate Authority/Reviewing Authority in

terms of schedule of Disciplinary Authorities to Bank Officer Employees (Discipline

& Appeal) Regulations, 1977.

33. Steering Committee for IT vision 2013: The Committee reviews the progress in

implementation of Vision 2013 document and also deliberates upon the requirements

as warranted in the aspects of plan.

34. Insurance joint venture committee: The Committee has been constituted to decide and

recommend to the Board of the Bank, the future course of action in Insurance

business by the Bank.

35. Committee of the Board for selection of business/management/operational consultant

for the bank(COB): It is formed in the matter of appointment of

business/management/operational consultants, the guidelines stipulates that the panel

prepared by a committee of the senior officers of the bank of the basis of open

invitation and response received, the evaluation of these bids should be done the

committee of directors of the board which include chairman of the audit committee

and the government officer nominee.

36. Committee of the Board for selection of business/management/operational consultant

for the bank: It is formed in the matter of appointment of

business/management/operational consultants, the guidelines stipulates that the panel

prepared by a committee of the senior officers of the bank of the basis of open

invitation and response received, the evaluation of these bids should be done the

committee of directors of the board which include chairman of the audit committee

and the government officer nominee.

Composition of committees varies from country to country and from bank to bank. The

functioning and composition of the committees receives significant attention. In line with the

requirement of SEBI and RBI the boards have committees such as Audit committee,

Nomination committee, Remuneration committee to monitor the Bank activities for effective

governance. However Banks have incorporated additional committees for effective

governance in the Bank and for smooth functioning. The formation of board committee helps

142

the banks to focus the attention of the bank‟s shareholders grievances and sensitize the

management to redress their grievances. GOI nominates its Officials on the Board of the

Bank who are also nominated on the Committees of the Board; Frequent changes in their

nomination also results in loss of continuity in the Committees of the Board of the Bank

which affects the performance.

4.6.2 NUMBER OF BOARD COMMITTEES IN BANKS:

Even though there is less evidence in support of the board committee and the disclosure level,

it is Laing and weir in the year 1999 reported the evidence to support the relationship

between board committee and bank performance. According to them firms which had

introduced board committees performed better than those without them.

Table: 4. 40

Number of Board Committees in Banks

Sl.

No. Name of the Bank

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

1. Corporation Bank 9 10 11 11 13 14 12

2. Canara Bank 6 6 6 6 6 6 6

3. Punjab National Bank 12 13 15 16 16 15 17

4. Vijaya Bank 8 8 10 11 11 13 13

5. Syndicate Bank 6 7 10 8 9 9 10

Table: 4. 41

Descriptive Statistics – Board committees.

Name Of The

Bank N Minimum Maximum Mean

Std.

Deviation

Corporation Bank 7 9.00 14.00 11.4286 1.71825

Canara Bank 7 6.00 6.00 6.0000 .00000

Punjab National

Bank 7 12.00 17.00 14.8571 1.77281

Vijaya Bank 7 8.00 13.00 10.5714 2.07020

Syndicate Bank 7 6.00 10.00 8.4286 1.51186

Valid N (listwise) 7

143

Formation of board committee is an important aspect of good governance in the banks. Since

separate committee help in focusing on relevant issues and thus helps in better performance.

On the basis of descriptive statistics it is found that the PNB has highest number of board

committee with mean value of 14.8571. Corporation bank with mean value of 11.4286 then it

is Vijaya Bank with 10.5714, Syndicate has the mean value of 8.4286 and lastly it is Canara

bank with six board committees has mean value of 6.

4.6.3 BOARD COMMITTEE AND DISCLOSURE LEVEL:

H0-There is no significant relationship between board committee and the extent of

corporate governance disclosure level

Table: 4. 42

Bank Average: Board Committee and CGDL

Bank CGDL BOC

Corporation Bank 57.57 11.4286

Canara Bank 55.57 6

Punjab National Bank 55.43 14.8571

Vijaya Bank 49.71 10.5714

Syndicate Bank 51.86 8.4286

The above table shows the bank‟s average disclosure level for seven years and the proportion

of board committees.

Based on the mean value of the number of board committees and the corporate governance

disclosure level the Pearson correlation test is used to find the relation between the presence

of board committee and good disclosure level of banks.

144

Table 4.43

Board Committee and CGDL

Correlations

CGDL BOC

CGDL

Pearson Correlation 1 .158

Sig. (2-tailed) .800

N 5 5

BOC

Pearson Correlation .158 1


N 5 5

Presence of Board committees helps banks in better disclosures. Using bivariate correlation

in SPSS following results were obtained. The Pearson correlation coefficient value r is .158

which shows weak correlation. Thus it can be inferred that the Proportion or the number of

board committees does not have the major impact on the disclosure level of the banks. Where

it‟s the active participation of the board committee with members of board actively looking

into the day to day affairs of the management the disclosure level can be improvised.

It is inferred that the board committee proportion is not having major impact on the

disclosure level of the bank. Board of the banks need to bear the responsibility to provide

strategic guidance towards better disclosure which affects the bank performance. The board

need to direct its executives by formulating and reviewing policies, plans, set performance

objectives and monitor implementation.

Hence the null hypothesis is accepted which states that there is no significant

relationship between board committee and the extent of corporate governance

disclosure level.

145

4.7 BOARD MEETINGS AND CORPORATE GOVERNANCE DISCLOSURE

LEVEL

Board meetings are important aspect of good governance in banks. Meetings give the

platform for discussion of crucial issues and highlight the performance of banks. Clause 49

specifies at least four meetings to be held in a year.

Table: 4.44

Bank Average of Board meetings

Sl.

No.

Name of the

Bank

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12 Average

1 Corporation

Bank 15 13 12 11 14 15 17 13.86

2 Canara Bank 12 10 13 13 11 11 11 11.57

3 PNB 14 14 14 18 14 14 13 14.43

4 Vijaya Bank 13 9 10 12 12 12 13 11.57

5 Syndicate Bank 7 12 12 13 8 11 8 10.14

Average 12.2 11.6 12.2 13.4 11.8 12.6 12.4

The above table highlights the number of board meetings held in the respective banks for

seven years. The mean value that is average number of meetings varies from 10.14 to 14.43

where Punjab national bank has the highest average Syndicate bank shows the least average

number of board meetings.

Year wise analysis of the board meetings held in the bank shows that though average number

the board meeting was 12.2 in the year 2005-06 increased to 11.6 in the year 2006-07 later it

showed a increase in the trend where again there was slight decline in 2011-12.

146

4.7.1 NUMBER OF BOARD MEETING AND THE CORPORATE GOVERNANCE

DISCLOSURE LEVEL

Board meetings are the forums for board decision making which helps directors to

discharge their responsibilities. The effectiveness of the meeting is based on the agenda and

the sufficient time provided. Meetings of the board enable discussion on matter placed before

them and facilitate decision making based on the collective judgement of the board.

Decisions related to the policy and operations of the bank are arrived at board meeting which

are held periodically.

Table 4.45

Bank average of board meeting and the CGDL:

The mean value of the number of board meeting of all the five banks and the corporate

governance disclosure level is highlighted below

Bank CGDL BOM

Corporation Bank 57.57 13.86

Canara Bank 55.57 11.57

Punjab National Bank 55.43 14.43

Vijaya Bank 49.71 11.57

Syndicate Bank 51.86 10.14

BOM: Board meeting

147

Table: 4. 46

Correlation between Number of Board Meetings and Disclosure Level

CGDL BOM

CGDL

Pearson Correlation 1 .673


N 5 5

BOM

Pearson Correlation .673 1


N 5 5

r= Pearson Correlation is significant at the 0.05 level (2-tailed)

Board meeting is expected to have a strong relationship with bank‟s corporate disclosure

level. To test this relationship Pearson Correlation Matrix analysis was performed with board

meetings and bank‟s corporate governance disclosure level for the period 2005–2012.

The analysis indicated a positively moderate correlation with the selected variables, i.e. r =

.673. Therefore from the above table it is inferred that in case of banks with increasing number

of board meetings enhances the corporate governance disclosure level to the great extent.

With the increase in the board meeting the board can have ample time to discuss about the

various issues of governance and thus enhances transparency and disclosures.

Thus researcher accepts the alternative hypothesis that there is significant relationship

between board meetings and the extent of corporate governance disclosure level

148

4.8 CORPORATE GOVERNANCE – SHAREHOLDER’S PERSPECTIVE:

Shareholders are important stakeholders of any banks. In the present study corporate

governance is studied from the shareholder‟s perspective. Questionnaire was distributed to

250 respondents where 192 respondents gave back the forms out of which thirty respondents

were selected from each bank which sums up to150 respondents.

The below table highlights the respondents profile.

Respondents Profile:

Table: 4. 47

Classification of the respondents on the basis of the Age

Nationalised Bank 18-30 31-45 46-60 Above 60 Total

Corporation bank 12 10 6 2 30

Canara bank 3 11 15 1 30

PNB 1 20 5 4 30

Vijaya Bank 10 7 13 0 30

Syndicate bank 5 9 11 5 30

Total 31 57 50 12 150

Percent 20.67 38 33.33 8 100

(Source: Field Survey)

Table shows the age wise classification of the respondents. 33.33% of the respondents were

in the age group of 46-60 years. 38% of the respondents were in the age group of 31-45

years. 20.67% of the respondents were in the age group of 18-30 years and 8% were above

60 years. The maximum number of respondents belongs to the age group of 31-45 years.

149

Table: 4. 48

Classification of the respondents on the basis of the gender

Male, Female and transgender are the three important gender classifications. However in the

present study there were no transgender.

Nationalised Bank Male Female Total

Corporation bank 18 12 30

Canara bank 20 10 30

PNB 21 9 30

Vijaya Bank 19 11 30

Syndicate bank 21 9 30

Total 99 51 150

Percent 66% 34% 100%


Above table shows the respondents classification based on the gender. 66% of the male and

34% of the female have responded to the questionnaire.

Table 4.49

Classification of the respondents on the basis of the Profession

Nationalised Bank Public

Services

Private

Services Business Student

House

Wife Retired Total

Corporation bank 13 5 7 3 1 1 30

Canara bank 5 14 5 0 2 4 30

PNB 12 11 1 0 3 3 30

Vijaya Bank 14 12 2 0 2 0 30

Syndicate bank 11 13 2 2 1 1 30

Total 55 55 17 5 9 9 150

Percent 36.67% 36.67% 11.33% 3.33% 6% 6% 100%


Table 4.49 shows Profession wise shareholders in private service and public service with

36.67% each have responded more compared to other profession.

11.33% of the shareholders are into business. 6% are housewives and retired employees each

and 3.33% are students since they too own share of the banks.

150

Table: 4.50

Classification of the respondents on the basis of the qualification

Sl.

No. Nationalised bank

SSLC-

diploma-PUC UG PG Professionals Total

1 Corporation bank 1 13 14 2 30

2 Canara bank 1 20 6 3 30

3 PNB 0 19 6 5 30

4 Vijaya Bank 4 13 9 4 30

5 Syndicate bank 3 13 12 2 30

Total 9 78 47 16 150

Percentage 6% 52% 31.33% 10.67% 100%


There are 52% of shareholders who have responded are having undergraduate degree such as

BA, Bcom, Bsc etc. 31.33% of the shareholders possess Postgraduate degree. 10.67% of the

shareholders are having professional courses and remaining 6% possess SSLC, Diploma and

PUC.

151

Table: 4.51

Shareholders are informed and provided all documents ahead of the General

Shareholders Meeting

Sl. No. Nationalised bank Yes No Total

1 Corporation bank 27 3 30

2 Canara bank 26 4 30

3 PNB 26 4 30

4 Vijaya Bank 29 1 30

5 Syndicate bank 28 2 30

Total 136 14 150

Percent 90.67% 14% 100%


The general shareholder‟s meetings provide an opportunity to the shareholder‟s to address

their concerns to the board of directors. It also helps shareholder‟s to seek explanation and

comment on the annual report and the overall functioning of the bank. Effectiveness of the

general shareholder meeting lies in the agenda provided ahead of the meeting. For effective

governance it is necessary that banks keep the shareholders informed about the details about

the bank.

Shareholders have to be informed about the date, time, location and agenda of general

shareholder meetings. It is mandatory to provide to shareholders explanatory details about the

items covered in the agenda along with the notice for the meeting.

Out of the 150 shareholders 90.67% of them agree that they have been informed and provided

all documents ahead of the shareholder‟s meeting. But 14% of the responded that they do not

agree to it.

152

Results of the general shareholder's meeting distributed to shareholders

Table 4.52

Information on Results of the meeting Available upon request

Nationalised

Bank Yes No Total


Canara bank 2 28 30

PNB 4 26 30

Vijaya Bank 2 28 30


Total 11 139 150

Percentage 7.33% 92.67% 100.00%


7.33% of shareholders have affirmed that the results are available on request.

Table: 4.53

Information on Results of the meeting sent by courier

Nationalised Bank Yes No Total



PNB 6 24 30



Total 65 85 150

Percentage 43.33 56.67 100.00


43.33% of shareholders have affirmed that results are available through courier.

153

Table: 4.54

Information on Results of the meeting Published in the press



Canara bank 8 22 30

PNB 8 22 30

Vijaya Bank 3 27 30


Total 36 114 150

Percentage 24 76 100


24% of the shareholders have affirmed that it is published in the press.

Table: 4.55

Information on Results of the meeting sent by mail




PNB 13 17 30



Total 61 89 150

Percentage 40.67 59.33 100.00


40.57% affirmed that the results are available through mail.

154

Table: 4.56

Information on Results of the meeting Published on the bank's website



Canara bank 5 25 30

PNB 7 23 30

Vijaya Bank 2 28 30

Syndicate 5 25 30

Total 21 129 150

Percentage 14 86 100


14% shareholders have the opinion that the results are Published on the bank's website.

Out of the five varied way of getting the results of the shareholders meeting maximum

number of shareholders have opted for courier and the mail as the means of getting the

results of the shareholders meeting.

Table 4.57

Bank handles complaints or queries of minority shareholders

Nationalised bank Yes No Total


Canara bank 27 3 30

PNB 29 1 30

Vijaya Bank 29 1 30


Total 141 9 150

Percentage 94% 0.06 100%


There are various types of complaints such as not getting dividend in due time once it is approved in

general meeting, not receiving annual reports on time or in terms of not receiving share certificates.

Out of 150 shareholders 94% of the respondents have agreed that the banks handle the complaints

or queries of minority shareholders.

155

Table: 4.58

Bank has a clearly disclosed dividend policy

Nationalised bank Yes No Total


Canara bank 30 0 30

PNB 29 1 30

Vijaya Bank 29 1 30


Total 142 8 150

Percentage 94.67% 5.33% 100%


The major concern of the shareholders is the return for their investment that is dividends.

According to the above table 94.67% of the shareholders have agreed that the banks have a

clearly disclosed dividend policy where 5.33% do not agree. 100% shareholders of Canara

bank agree to it. In case of PNB and Vijaya Bank it is 96.70%. 90% of Corporation Bank and

Syndicate bank shareholders have given affirmative response. Shareholders are satisfied in

terms of disclosure of the dividend policy of the respective banks.

Table 4.59

Banks programs or procedures



Canara bank 23 7 30

PNB 17 13 30



Total 79 71 150

Percentage 52.67% 47.33% 100.00%


As part of the good governance banks should create awareness among the investors in

relation to its practice of good governance. 52.67% shareholders agree that Banks have

programs or procedures which enable investors to express their views on community issues,

perceived unethical practices, or other concerns.

156

4.8.1 IMPORTANT ATTRIBUTES OF CORPORATE GOVERNANCE:

H0: High disclosure is an important attribute of corporate governance.

The major aspect of the corporate governance is accountability, transparency and the

equitable treatment of the stakeholders. Shareholders were asked to determine important

attributes of corporate governance.

The six attributes of the corporate governance are taken into consideration. They are

Shareholding pattern, appropriate governance structures, Presence of a strong and

independent Board of Directors, Adequate Committee Structure, Means of Communication

and High level of disclosures. The attributes of corporate governance help ensure quality

decision making, encourage effective succession planning for senior management and

enhance long term prosperity of banks.

Six attributes of the corporate governance was marked and based on the likert scale. Each

attribute was rated important, very important, Un important, very un important and neutral.

One sample t test was conducted to determine the importance of each attribute. The following

analysis was drawn based on the test.

157

Table: 4.60 - Important Attributes of Corporate Governance

One-Sample Statistics One-Sample Test

Test Value = 3

Attributes N Mean Std.

Deviation

Std.

Error

Mean

t df Sig. (2-tailed) Mean

Difference

95% Confidence Interval

of the Difference

Lower Upper

Shareholding

patterns 150 2.7267 1.04847 .08561 -3.193 149 .002 -.27333 -.4425 -.1042

Appropriate

governance

structure

150 4.0000 .89742 .07327 13.647 149 .000 1.00000 .8552 1.1448

Presence of a strong

and independent

Board of Directors

150 3.5067 .94653 .07728 6.556 149 .000 .50667 .3540 .6594

Adequate

Committee

Structure

150 3.1600 .96294 .07862 2.035 149 .044 .16000 .0046 .3154

Means of

Communication 150 2.5867 1.04391 .08524 -4.849 149 .000 -.41333 -.5818 -.2449

High level of

disclosures 150 4.4467 .87881 .07175 20.161 149 .000 1.44667 1.3049 1.5885


158

The above table reveals that the mean scores for the select attributes range between

2.5867to 4.4467 and the standard deviation being closer to 1 indicates that there are

significant differences among the respondents in their rating towards the CG practices

followed by select Bank as their ratings are slightly inconsistent.

Most of the respondents agree for the attribute that high level of disclosures as

revealed through the highest mean score of 4.4467 followed by agreement to the

attribute that Appropriate governance structure with a mean score of 4 and for all

other statements the mean score of more than 3 indicating the towering presence of

good CG practices except for the attribute Means of Communication which has

observed the lowest mean value of 2.5867 and shareholding pattern with 2.7267.

They also opine that entry of private bank has brought about a positive change in

Bank‟s approach and they are more formidable than any time before.

To test whether the select attributes are significant or not, one sample T test was

conducted and the results are as under.

T test is carried out with assumed mean 3. The total score in the five point scale is 15

and the average is 3. The calculated mean value of select attributes is more than the

assumed mean 3 and the observed P value 0.001 is less than 0.05 in case of

Appropriate governance structure, Presence of a strong and independent Board of

Directors, Adequate Committee Structure Shareholding patterns , Means of

Communication & High level of disclosures.

Thus at 95% confidence interval out of the six attributes High level of disclosures is

considered to be very important attribute for good corporate governance. Thus

shareholders have the opinion that high disclosure is of utmost importance for banks

for their effective governance.

Thus researcher accepts the alternative hypothesis that high disclosure is an important

attribute of corporate governance. The results match with the secondary data analysis

where high disclosure is required for better bank performance. Even shareholders

have opinion that the high disclosure is an important attribute of good governance.

159

4.8.2 SHAREHOLDER’S RIGHTS AND CORPORATE GOVERNANCE

SEBI has consideration for the minority shareholders voting rights. Shareholders need

to view Annual General Meetings seriously because they prove the opportunity for

them to meet and question the board on a wide range of issues affecting the bank.

The following important questions were analyzed from the shareholders perspective

to strengthen their rights. Shareholders when attending an annual general meeting can

actively participate by inquiring any matter pertaining to banks which has been

included in the annual reports of bank. They can raise issues relating to legal and

procedural requirements of general meetings, future direction of the bank, they can

also engage in the frank discussions about the banks performance which helps to exert

pressure on the directors to be more transparent and accountable. At the meeting

shareholders should enquire whether the notice of the meeting was given to them to

regarding the voting rights.

Table 4.61

Shareholders have the right to participate, vote at the general meeting and to be

treated fairly

Nationalised

Bank SD D UN A SA Total

Corporation bank 1 1 0 14 14 30

Canara bank 6 0 3 15 6 30

PNB 2 1 0 23 4 30

Vijaya Bank 2 2 1 10 15 30

Syndicate bank 4 2 4 2 18 30

Total 15 6 8 64 57 150

% 10.00 4.00 5.33 42.67 38.00 100.00


(S D stands for Strongly disagree, D= Disagree, UN= Uncertain, A= Agree, SA=

Strongly agree.)

160

According to the legislations shareholder can vote in person or in absentia and both

voting rights are treated equally. Shareholders are given an opportunity to ask any

relevant questions at these general body meetings

Out of 150 shareholders 42.67% of the shareholders agree that they have the right to

participate, vote at the general meeting and to be treated fairly. 38% strongly agree to

it, where 10% of the shareholders disagree, 5.33% have a neutral view they are

uncertain and 4% disagree to it. In the wake of present amendment of the

shareholders right which are increased from one percent to ten percent shareholders

have strong opinion about the increase in their rights to vote at the general meeting.

Table 4.62

Shareholders have the right to be informed on

decisions concerning fundamental corporate changes

Nationalised


Corporation

bank 2 0 2 20 6 30


PNB 2 1 1 18 8 30

Vijaya Bank 2 1 8 14 5 30


Total 11 4 25 70 40 150

% 7.33 2.67 16.67 46.67 26.67 100.00


46.67% shareholders somewhat agree that they have the right to be informed on

decisions concerning fundamental corporate changes. 26.67% of the shareholders

strongly agree and 16.67% neither agree nor disagree. 2.67% shareholders somewhat

disagree and 7.33% shareholders strongly disagree.

161

Table 4.63

Shareholders are provided with adequate information on the agenda items of the

shareholders’ meeting

Nationalised Bank SD D UN A SA Total



PNB 0 1 2 25 2 30



Total 9 9 20 87 25 150

% 6.00 6.00 13.33 58.00 16.67 100.00


It is important that the shareholders are provided with adequate information on the

agenda items of the shareholder‟s meeting which helps them to save their time and

come prepare with for the matter of discussion. 58% of the shareholders agree,

16.67% strongly agree to it and 6% of the shareholders strongly disagree and other

6% disagree respectively. 13.33% neither agree nor disagree they are uncertain.

Table 4.64

Adequate time is given for asking questions and placing issues at the

shareholders’ meeting

Nationalised




PNB 2 1 2 25 0 30



Total 15 9 27 76 23 150

% 10.00 6.00 18.00 50.67 15.33 100.00


50.67% of shareholders agree that adequate time is given for asking questions and

placing issues at the shareholders meeting. 15.33% of the shareholders strongly agree,

10% of the shareholders strongly disagree, 6% disagree and 18% of the shareholders

neither agree nor disagree they are uncertain.

162

Table 4.65

Shareholder’s rights-One-Sample Statistics

Shareholders have the right to participate,

vote at the general meeting and to be

treated fairly

150 3.9467 1.22495 .10002

Shareholders have the right to be informed

on decisions concerning fundamental

corporate changes

150 3.8267 1.08527 .08861

Shareholders are provided with adequate

information on the agenda items of the

shareholders‟ meeting

150 3.7333 1.00780 .08229

Adequate time is given for asking

questions and placing issues at the


150 3.5533 1.13242 .09246


Table 4.65 reveals that the mean scores for the select shareholder‟s rights range

between 3.5533 to 3.9467 and the standard deviation being more than 1 indicates that

there are less significant differences among the respondents in their rating towards the

shareholder‟s rights followed by select Bank as their ratings are quite consistent.

Table 4.66

Shareholder rights-One-Sample Test

Test Value = 3

t Df Sig. (2-

tailed)

Mean

Difference

Shareholders have the right to

participate, vote at the general

meeting and to be treated fairly

9.465 149 .000 .94667

Shareholders have the right to be

informed on decisions concerning

fundamental corporate changes

9.329 149 .000 .82667

Shareholders are provided with

adequate information on the agenda

items of the shareholders‟ meeting

8.912 149 .000 .73333

Adequate time is given for asking

questions and placing issues at the


5.984 149 .000 .55333


163

Table 4.67

Shareholders rights- t value

Test Value = 3

95% Confidence

Interval of the

Difference

t Df Sig. (2-

tailed)

Mean

Difference Lower Upper

Shareholders have the

right to participate, vote

at the general meeting

and to be treated fairly

9.465 149 .000 .94667 .7490 1.1443

Shareholders have the

right to be informed on

decisions concerning

fundamental corporate

changes

9.329 149 .000 .82667 .6516 1.0018

Shareholders are

provided with adequate

information on the

agenda items of the


8.912 149 .000 .73333 .5707 .8959

Adequate time is given

for asking questions

and placing issues at

the shareholders‟

meeting

5.984 149 .000 .55333 .3706 .7360


Most of the respondents agree that the Shareholders rights to be protected by the

banks.

Table 4.67 highlights the statistical significance of Shareholder‟s rights. P value is

less than the alpha at 5% level of significance.

P value 0.002 < 5% level of significance therefore it is statistically significant

shareholder‟s are aware of right to participate, vote at the general meeting and to be

treated fairly.

P value 0.000 < 5% level of significance, therefore Shareholders have the opinion that

their right to be informed on decisions concerning fundamental corporate changes

needs to be protected.

164

P value 0.003 < 5% level of significance level of significance shareholders are

provided with adequate information on the agenda items of the shareholders' meeting.

P value 0.002 < 5% level of significance level of significance adequate time is given

for asking questions and placing issues at the shareholders' meeting.

Due to the controlling shareholders the shareholders would not find it easy to alter the

outcome of decisions made in the shareholders meetings but still with the given rights

they can see that it is enforced. It is inferred that the shareholders rights of banks are

protected. Maximizing shareholder wealth is the corner stone of corporate

governance. Shareholders can contribute towards the corporate governance of the

banks if they exercise their rights appropriately. At the same time banks need to

protect their rights.

4.8.3 TOP REFORM PRIORITIES FOR BANK'S POLICYMAKERS:

Compliance of the corporate governance has been given top priority by the regulatory

bodies with the objective of providing better and effective protection to investors and

also to make the market confident vibrant. Bank policy makers should work on

promoting responsible investment and active ownership by the investors.

Strengthening shareholders rights, improving accounting standards, more effective

disclosure and stronger enforcement are chosen as the top priority for banks

policymaker.

It is often argued that accounting and disclosure rules are good in India and the

problem lies mainly in the enforcement. Banks policy makers must consider the issues

of enforcement since there are mandatory requirements which aren‟t complied by the

banks. Shareholders have responded to the top reform priorities for bank‟s

policymakers.

165

Table 4.68 Canara Bank One-Sample Statistics T test

PRIORITIES

N Mean Std. Deviation Std. Error Mean

Strengthen shareholder rights 30 3.8000 .76112 .13896

Improve accounting standards 30 4.2000 .92476 .16884

More effective disclosure 30 4.2000 .66436 .12130

Stronger Enforcement 30 4.1000 .54772 .10000

One sample statistics results reveal that the shareholders have opted more for improve

accounting standards and more effective disclosures as the top priority for the bank‟s

policy makers.

166

Table 4.69 Canara Bank One-Sample Test

PRIORITIES

Test Value = 3

t df Sig. (2-

tailed)

Mean

Difference


of the Difference

Lower Upper

Strengthen

shareholder rights 5.757 29 .000 .8000 .5158 1.0842

Improve

accounting

standards

7.107 29 .000 1.2000 .8547 1.5453

More effective

disclosure 9.893 29 .000 1.2000 .9519 1.4481

Stronger

Enforcement 11.000 29 .000 1.1000 .8955 1.3045

The above table depicts the t test value which shows that all the four variables are

statistically significant. According the Canara bank shareholders all the four variables

are significant for banks policy makers.

167

Table 4.70 Syndicate Bank One-Sample Statistics T test

PRIORITIES

N Mean Std.

Deviation

Std. Error

Mean


Improve accounting

standards 30 3.8333 .94989 .17343



The one sample statistics shows that the mean value of the stronger enforcement is

high followed by more effective disclosure and improving accounting standards and

strengthen shareholder rights.

168

Table 4.71 Syndicate bank -One-Sample Test

PRIORITIES

Test Value = 3

t df Sig. (2-

tailed)

Mean

Difference


of the Difference

Lower Upper

Strengthen


Improve

accounting

standards

4.805 29 .000 .8333 .4786 1.1880

More effective

disclosure 17.954 29 .000 1.1333 1.0042 1.2624

Stronger

Enforcement 12.042 29 .000 1.3333 1.1069 1.5598

The above table highlights the respondent‟s opinion about top priorities of bank‟s

policy maker‟s. Out of mean value shareholder‟s have highlighted that stronger

enforcement should be the top priority of the bank‟s policy makers, followed by more

effective disclosure and improving accounting standards and strengthening

shareholder‟s rights.

169

Table 4.72 Vijaya bank - One-Sample Statistics T test

PRIORITIES


Strengthen shareholder rights 30 3.0667 1.17248 .21406

Improve accounting standards 30 3.2000 1.09545 .20000

More effective disclosure 30 3.2667 1.38796 .25341

Stronger Enforcement 30 2.8000 1.34933 .24635

Shareholders of Vijaya bank have opted for the more effective disclosure rather than

the stronger enforcement as the bank policy maker‟s top priority.

170

Table 4.73 Vijaya bank One-Sample Test

PRIORITIES

Test Value = 3

t Df Sig. (2-

tailed)

Mean

Difference


of the Difference

Lower Upper

Strengthen

shareholder rights .311 29 .758 .0667 -.3711 .5045

Improve accounting

standards 1.000 29 .326 .2000 -.2090 .6090

More effective

disclosure 1.052 29 .301 .2667 -.2516 .7849

Stronger

Enforcement -.812 29 .423 -.2000 -.7038 .3038

From the above table it is inferred that the shareholders statistically it is showing

insignificant results that is there are various other factors which affects banks policy

makers decision for effective governance.

171

Table 4.74 PNB One-Sample Statistics T test

PRIORITIES


Strengthen shareholder rights 30 4.0000 .00000(a) .00000




The above table states that the maximum numbers of shareholders have opted for

more effective disclosure should be the top priority of bank‟s policy makers.

172

Table 4.75 PNB One-Sample Test

PRIORITIES

Test Value = 3

t df Sig. (2-

tailed)

Mean

Difference

95% Confidence Interval of

the Difference

Lower Upper

Improve accounting

standards 3.120 29 .004 .4667 .1607 .7726

More effective

disclosure 12.339 29 .000 1.4000 1.1679 1.6321

Stronger Enforcement 15.232 29 .000 1.3333 1.1543 1.5124

According to the above table it is inferred that stronger enforcement and more

effective disclosure should be the top priorities of the bank‟s policy makers.

173

Table 4.76 Corporation Bank One-Sample Statistics T test

PRIORITIES






The mean value of stronger enforcement, is showing higher mean value followed by

more effective disclosure, improve accounting standards. The mean value to

strengthen shareholder rights is 3.8.

174

Table 4.77 Corporation Bank One-Sample Test

PRIORITIES

Test Value = 3

t df Sig. (2-

tailed)

Mean

Difference

95% Confidence

Interval of the

Difference

Lower Upper

Strengthen


Improve

accounting

standards

5.635 29 .000 .9333 .5946 1.2721

More effective

disclosure 11.000 29 .000 1.1000 .8955 1.3045

Stronger

Enforcement 9.280 29 .000 1.2333 .9615 1.5051

The above table highlights the bank‟s policy maker‟s top priorities. Out of mean

value shareholder‟s have highlighted that stronger enforcement should be the top

priority of the bank‟s policy makers, followed by more effective disclosure and

improving accounting standards and strengthening shareholder‟s rights.

Further analysis of the shareholders perspective in group is made which shows that

high disclosure should be the tope priorities of bank‟s policy makers.

175

Table 4.78

Respondents opinion about top reform priorities for bank's policymakers-One-

Sample Statistics

PRIORITIES N Mean Std.

Deviation

Std. Error

Mean

Strengthen shareholder

rights 150 3.6933 .79382 .06482

Improve accounting

standards 150 3.7267 .99594 .08132

More effective

disclosure 150 4.0200 .87830 .07171



One sample statistics show mean value ranging from 3.6933 to 4.0200 where

strengthen shareholders rights has mean value of 3.6933, improve accounting

standards has mean value of 3.7267 , more effective disclosure has mean value of

4.0200 and the stronger enforcement has mean value of 3.9600.

Table 4.79

Respondents opinion about top reform priorities for bank's policy makers : One-

Sample Test

PRIORITIES

Test Value = 3

95% Confidence Interval of the Difference

t df Sig. (2-

tailed)

Mean

Difference Lower Upper

Strengthen

shareholder rights 10.697 149 .000 .69333 .5653 .8214

Improve

accounting

standards

8.936 149 .000 .72667 .5660 .8874

More effective

disclosure 14.223 149 .000 1.02000 .8783 1.1617

Stronger

Enforcement 11.888 149 .000 .96000 .8004 1.1196


176

The above table highlights the banks‟ top priorities which shareholders responded. T

test is carried out with assumed mean 3. The total score in the five point scale is 15

and the average is 3. The calculated mean value of select attributes is more than the

assumed mean 3 and the observed P value 0.000 is less than 0.05 in case of

Strengthen shareholder rights, Improve accounting standards, More effective

disclosure and Stronger Enforcement which reveals that they are statistically

significant.

According to the bank shareholders more effective disclosure and stronger

enforcement is to be the top priority of the bank followed by improve accounting

standards and strengthening shareholders rights. The p value for all the five priorities

are less that 5% level of significance which infers that it is statistically significant.

4.8.4 SHAREHOLDER’S OPINION ON CORPORATE GOVERNANCE:

Open ended questions give the respondent the free space to think and express their

opinion without blocking their ideas. The last two questions were asked to elicit the

response from the shareholders regarding the suggestions and the opinion towards the

corporate governance.

The open ended questions were related to:

a) Measures to avoid unethical practices in banks.

b) Corporate governance affecting shareholders investment decision.

a) Measures to Avoid Unethical Practices in Banks

Following are the suggestions made by the shareholders:

1. Shareholder‟s have the opinion that more transparency is required to prevent

the insider trading of the Bank‟s.

2. They have the opinion that there should be ban on sale of shares in open

market.

3. Severe penalty and increase in the prison term is been suggested.

177

4. There need to be complete ban from trading by those officials involved in

unethical practices.

5. Few shareholder‟s have opinion in relation to appointment where the right

people with right attitude need to be employed to avoid such kind of illegal

activity.

6. Few have suggested that banks should try to avoid waiving off the loan

awaited by the corporate and banks need to give importance to social fabric

strata.

7. According to them more effective disclosure and transparency will help in

curbing such activities.

8. Shareholders have the opinion that there is need of improvement in the

accounting standards.

9. Shareholders have the opinion that proper recruitment of qualified people can

solve the issue to maximum extent.

10. There were suggestions from shareholders that even banks need to be banned

which are found mismanaging the fund mere penalty doesn‟t help.

11. In order to avoid unethical practices there is a need for proper and effective

communication.

12. There is a requirement of proper and complete declaration by the officer is

required to avoid such instances.

13. Disclosure needs to certified by due authorities to avoid such mishappenings.

14. There is strong opinion of shareholders that Bank‟s should be delisted from

the stock market if found guilty.

15. Respondents had the opinion that Bank‟s need to strengthen shareholder‟s

rights.

16. There was strong suggestion that minimum prison term of five years for those

involved in unethical practices.

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b) Corporate Governance Affecting Shareholders Investment Decision

Related to the last question posed to the shareholders there were mixed reaction in

relation to the effect of the corporate governance in their investment decision.

55% expressed their opinion about the positive impact of the corporate governance in

their investment decisions and 45% of the Shareholders have the opinion that

corporate governance does not affect their investment decision.

Shareholders have strong opinion that stronger the corporate governance stronger will

be their desire to invest. According to them good governance is the key to excellently

running banks, and is always required for positive investment decision and they

responded that good communication is the key for good governance.

There was opinion of few shareholders that corporate governance has not much

impact in banking industry as most of the policy decisions are taken by finance

minister and there is political intervention. Shareholder opined that they would

withdraw shares of banks with lack of governance buy additional shares of banks with

good governance.

It‟s the consensus opinion of the shareholders that without proper governance bank

cannot achieve certain goals.

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