ISSUES AND CHALLENGES OF CORPORATE GOVERNANCE IN … · 2019. 6. 14. · Jharkhand Journal of...

Jharkhand Journal of Development and Management StudiesXISS, Ranchi, Vol. 17, No.1, March 2019, pp. 8001-8021

ISSUES AND CHALLENGES OF CORPORATE GOVERNANCEIN BANKS: AN EMPIRICAL STUDY BASED ON

MANAGERIAL PRACTICES

Suman Kalyan Chaudhury1

Corporate governance, in today’s environment, is considered asone of the most significant and critical issues and needs greaterattention of the Indian industries especially the Indian banks. Thepractice of good corporate governance has become the mostchallenging task today since many of them have failed miserably inthe recovery of huge debts because it can shake the backbone of asound banking system. To exhibit sustainable development, banksshould follow the right corporate governance practices. Keeping anote of the above-mentioned facts, a study has been carried out toknow the perception of various levels of bank managers with regardto issues and challenges in the ongoing CG practices in the Indianbanking industry. The present study contributes to identifying thefactors affecting common CG practices in the selected Banks (bothprivate and public) in five different states of India. The researchstudy in the present context has identified three issues namelyfinancial transparency & disclosure, implementation of SEBI normsand an introduction of IT and composition of board meeting membersas well as three challenges namely transparency norms, IFRSchallenges and shareholders structure.Keywords : Corporate Governance, Bank, Transparency,Accountability, Disclosure

Introduction

A paramount shift in the policy directed towards a more liberalisedmindset to accommodate global players led by the Indian economy toconsciously shift from a controlled market to the one that is driven bythe emerging market forces. Joseph E. Stiglitz (2002) voiced afavourable remark in the context of globalisation that said, “takingadvantage of globalisation India has been one of its beneficiaries andhas managed historically unprecedented growth rate for more than adecade and a half.” Several developments, because globalization hasled to market competitions. Today, firms can aspire to achieve theirgoals only through good governance. According to Lea (2008) thefinancial crises visualized that bank management is not always ableto execute, implement and oversee the governance arrangements whichare a must for sound business decisions. In many cases, the ill-advisedremuneration policies led to excessive short-term risk-taking by theexecutive management. Indeed, while the weak and superficialgovernance practices are not perhaps a direct trigger for the crisis,

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1 Faculty Member, P.G. Department of Business Administration, Bhanja Bihar,Berhampur University-760007, Odisha, India. Mob No- 09437400402. E-mailId: [email protected]

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they clearly exacerbated the financial situation (Tuominen, 2018). Well-Organized bank management performs better than that of the others:otherwise, compliance with Corporate Governance codes would losetheir essence. Thus, the findings indicate probable inherentmanagement issues of the bonus in the market (Ahmed, Zannat &Ahmed, 2017). Dharmwani (2015) in their study observed that Indianbanks can start by focussing on the corporate governance themes. Banksneed to ensure good Corporate Governance in order to achieve excellence,transparency, maximization of shareholders’ value and wealth. Withelements of good corporate governance, sound investment policy,appropriate internal control systems, better credit risk management,commitment to better customer service, adequate automation andproactive policies, banks will definitely be able to grapple with thesechallenges and convert them into opportunities. Morrison and Shapiro(2016) revealed that the most important cultural practices in thefinancial services sector arose in response to pressing economic andsocial problems. In particular, after changes to the technological andlegal environment within which the bankers operate decoupled culturalpractices from their original context as they started to deploy culturaldevices where their social utility was less apparent.Research questionsAre SEBI and RBI facing challenges to inculcate the CG practices inthe Indian banking system? Is cross-holding of shares a greaterchallenging task for the Indian banks? Will the BASEL-III norm onceimplemented CG practices will automatically come in place in the Indianbanking system? Since the Indian banking system is dominated bythe public sector banks, the government has a greater controlling;fails to bring transparency in decision making which makes it difficultto include corporate governance practice in the banking system. Thesequestions are further grouped in issues and challenges of the corporategovernance practices in the Indian banking industry. Based on thesequestions two prominent research questions have been framed thatare as follows:

Is there any significant difference of opinion about the majorissues regarding the corporate governance practices amongthe different levels of managers in the Indian bankingsector?

Is there any significant difference of opinion about the majorchallenges of CG practices among the different levels ofmanagers of the banking sector?

These questions have been addressed to find the answer for themajor issues & challenges of the corporate governance practices

Issues and Challenges of Corporate Governance in Banks 8003

as perceived by different levels of managers of the selected banks(both public sector and private sector) in five different states ofIndia.

Review of past researchThis section is devoted to a review of the literature related to the studyof issues and challenges of Corporate Governance. A review of the earlierstudies in this particular topic is essential to understand the nationaland global scenario of Corporate Governance practices. Nigeria’s recentpolicy measures to recapitalise and consolidate its banks reportedwidespread structural and operational deficiencies; even then thebanking industry in Nigeria has failed to address the weaknesses ofpoor corporate governance.

Seeing this Nakpodia (2018) emphasised on the centrality ofthe banking system for obtaining the sustainable economicviability, for attaining a greater requirement of establishingefficient and effective corporate governance mechanism in thebanking system.

Sanyal and Hisam (2017) have studied “Corporate Governancein emerging economies: A Study of the Sultanate of Oman” andconcluded that The Code of Corporate Governance for Publicly ListedCompanies (the New Corporate Governance Code or New Code) issuedby the Capital Market Authority (CMA ) of Oman is a significantimprovement over the older code of corporate governance and addressesseveral key issues such as composition and remuneration of board ofdirectors, setting up of audit committees, appointing a compliance officerand addressing issues of corporate social responsibility. Oman has beena pioneer in Corporate Governance initiatives among the membernations of the Gulf Cooperation Council (GCC). Issues like disclosureof financial performance, duties and responsibilities of board membersand independent directors (especially in family held conglomerates)have to be investigated further in order to ensure more stringentcompliance with global standards. However, the study has found thatOman is on the right path to setting up more effective and strongermechanisms to enable the country to fully participate in the globalfinancial marketplace.

Miko and Kamardin (2016) studied Corporate GovernanceDevelopment in Nigeria and concluded that corporate governance isimportant for economic development, it helps corporate organizationsto source finance from external sources at a competitive rate. Enforcingcorporate governance mechanism can be from private or publicenforcement mechanism, although, private enforcement mechanismrely on the effectiveness of the public enforcement mechanism. Despite

many regulations the problems of corporate failures, bankruptcy andgovernance lapses have persisted because of increased corruption andpoor compliance with the policy.

Dare (2015) has the opinion that globalization led to the increasein the interdependence of international financial markets. The investorsacross the world experience the need of good corporate governancepractices mainly in large corporate and financial institutions.Enforcement of the corporate governance practice ensure transparencyand internal control with international standards in the bankingindustry. Dare (2015) further added in pointing out that corporatescandals experienced at the turn of this century across the globe andthe recent bank crisis in Nigeria are traceable to poor corporategovernance. His study examined the corporate governance of theNigerian banking industry and how to address the challenges posedby poor corporate governance in order to instil public confidence incorporate reporting.

Garuba (2010) pointed out that banks should adhere to the codeof corporate governance which has been introduced to ensure soundnessand transparency in the conduct of banking business in Nigeria.Moreover he stressed on the review of quarterly compliance reportssubmitted by the banks to the stock exchanges in the prescribed formatand note down any non-compliance. Finally, the government mustprovide a suitable environment to enable business organizations tooperate in the Nigerian economy.

According to Garuba and Otomewo (2015) recapitalization of banksplay a vital role in promoting effective corporate governance in theNigerian banking industry. Their study further recommends thatpromoting the culture of whistle blowing, promoting business ethicsthrough moral education; strengthen the financial system to encouragecompliance with the code of corporate governance as well as establishingstrong anti-fraud controls that would serve as deterrents to fraudstersat every level within the deposit money banks.

Anao (2010) believed that if accountants and auditors maintainedthe high ethical conduct expected of them many of the recent corporatescandals would not have been possible. There is also the issue of anineffective and inefficient system of internal control. Further, he alsoaddressed that it is the responsibility of the management to set upadequate controls to ensure that the business is conducted in an orderlyand efficient manner that the assets of the entity are safeguarded,that management policies are complied with and that records arecomplete and reliable. Therefore, to address these challenges,stakeholders should ensure that public companies, including banks,do not violate the relevant statutes/guidelines, specifically prescribed

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by a regulatory authority and should identify the applicability of anysuch conditions separately.Corporate governance in India: Issues and challengesCorporate Governance as a concept is fast emerging as a decisive toolto control, contain and facilitate corporate operations across the world.In the present era of globalization, dominated by the flows of globalcapital; corporate governance has become a means of assuring investors-both individual and institutional shareholders that they do not intendto misuse their money in all operations. Its structure ensures thecorporate entities do not engage in fraudulent practices and continueto grow and make profits. It is perhaps the most important challengethat corporate India of today faces with regard to effective corporatemanagement (Arun & Turner, 2004). Researches in the past haverevealed that the mindset of people has been significantly influencedby the organizational culture.

The faith of the business world in a company is often dependenton the exhibited and sustained transparency, quality and robustnessof its reported earnings which is interpreted as an outcome of itscorporate actions and processes. However, reported earnings is oftenopaque and is a complex interplay among accounting assumptions,events, tangible transactions and interpreted truths. Its governancesits on three pillars. These are -management and its motivations,standards and laws in the country and the effective oversight andenforcement of such laws by the regulators and courts (Dutta, 2018).There exists a relation between the rising level of Non-PerformingAssets (NPA) and frauds in PSBs. The present crisis in the Indianbanking system has raised two fundamental issues; the inadequacy ofcorporate governance framework for PSBs in India and the lack ofadequate regulatory system over the PSBs by India’s central bank,the Reserve Bank of India (RBI) (Pandya, 2018). A clear understandingof the fundamental values which govern corporate governance and theirexplicit articulation in a proper code, backed by well-establishedstructures and traditions like the ethics committee and auditcommittee, maybe the best assurance for good corporate governanceunder any circumstance (Adhikari, 2008).

Significance of the studyCorporate governance has assumed significance due to Globalizationand Liberalization. With the opening up of the economy and itsalignment with the World Trade Organization (WTO) requirements,the success and survival of the Indian corporations depend significantlyon transparency and standard operative practices adopted by them.But the recent scams made news in the Indian banking, has questioned


the operational procedure of these commercial banks. This is the reasonwhy this research paper has of greater usefulness. Many a timesallegations come with the eruption of any corruption in Indian bankingis the independence of the bank board in taking policy-related decisionswithout any pressure from the government. But in reality, it is a factthat it is of a greater challenge for the Indian public sector banks thatthe board of directors sit in the board sometimes take unanimousdecisions related to policies independently which can have an adverseeffect on challenges faced by various stakeholders. The appointment ofindependent directors is a greater issue that the present researchhighlights. However, it is a fact that the RBI and the SEBI areresponsible for maintaining good corporate governance practices amongthe banks. But to what extent they are responsible to maintain thesame is a matter of utmost importance. In this context, an attempt ismade to know the perception of the different level of managers in thebanking sector about the good CG practices. Moreover, current studywill be useful to policymakers, bankers, depositors, investors and publicat large.Objectives of the studyThe principal objectives are:

To study the concept of corporate governance in the area ofthe selected banking sector in India.

To understand the major issues of corporate governancepractices as perceived by different level of managers of thebanking sector

To examine the major challenges of corporate governancepractices as perceived by different levels of managers in theBanking Sector

Hypotheses of the studyThe following are the null hypotheses of the study.

H01: There are no significant differences of opinion about themajor issues of corporate governance practices among thedifferent levels of managers of the banking sector.

H02: There are no significant differences of opinion about themajor challenges of corporate governance practices.

Research methodologyThis study aims at examining the issues and challenges of CorporateGovernance practices of some of the selected Public and Private SectorBanks in India. The study is both exploratory and descriptive in nature.

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Keeping in mind the nature of the data required a multi-stage randomsampling technique has been used. Altogether thirteen banks (sevenfrom Private Sector and six from Public Sector), and several selectedbank branches from Odisha, West Bengal, Andhra Pradesh,Chhattisgarh and Madhya Pradesh have been considered for the purposeof data collection. To carry out the study, both primary and secondarydata have been used. The primary data are collected through astructured questionnaire from different levels of managers of the selectedpublic sector banks as well as private sector banks. The secondarydata have been collected mainly from books, refereed journals, AnnualReports, EBSCO host, various websites and published documents ofcommercial banks, the RBI, the SEBI and, the Government of India.

Since the issues and challenges faced by the banks relating tocorporate governance are unclear, the study used ten questions relatingto the CG Issues and another ten question relating to CG Challengeswere used as a questionnaire using a five point Likert’s scale. Thedata so collected was put in to Exploratory Factor analysis to identifythe issues and challenges. Further, the opinion of the different level ofmanagers towards CG practices have been compared. The higher andmiddle-level managers were the samples for this study. ANOVA test isconducted to understand the perceptual difference between the differentlevel of bank employees towards the CG practices.

The flow of this research is depicted in the following chart thathelps one to take a note of this research;

Figure-1: Flow Chart of the Research Process


Data analysis & interpretationFactor analysis on issues of corporate governanceThe factors associated with the issues of the corporate governancerelating to the organisation are measured by the 10 variables. Thedescriptive statistics of the issues of corporate governance are given intable-1Table-1. Descriptive statistics

Variables Statements Mean StandardCG Issues Deviation

I-1 The independent directors work 3.2589 1.12644independently in the banking Industry.

I-2 The role of RBI towards CG practices by 3.3188 1.07594banks is satisfactory.

I-3 The role of SEBI towards CG practices by 3.2616 1.04658banks is satisfactory.

I-4 The cross holding of shares by banks 3.3597 1.04349improve governance practices.

I-5 The disclosure & transparency as per 3.3134 1.08008international standard needs to be followedstrictly.

I-6 The practices of window dressing in 3.1880 1.10640financial reporting are a fact.

I-7 The induction of family members and 3.2153 1.08390close relatives in the company board willbring any transparency in the governance/administration.

I-8 Decisions are taken at the board 3.2589 1.10440meeting in a free and frank manner.

I-9 The introduction of IT helped in disclosing 3.1580 1.12938information and ensuring bettergovernance practices.

I-10 The Government and the RBI persistently 3.1444 1.11049deploy their officials on the board meetings.

Source: Researcher’s own estimation

From the above table, it is clear that the mean value is highest(i.e. 3.3597) for the statement “Cross holding of shares by banks” followedby 3.3188 for the statement “Role of RBI towards CG practices” and islowest (i.e. 3.1444) for the statement “Deployment of officials by RBIand government”. This may be due to the fact that a publicly tradedcorporation owns stock in another publicly traded company. This is acomplex situation which can lead to double counting, whereby theequity of each company is counted twice when determining value. Whendouble counting occurs, the security’s value is counted twice, whichcan result in estimating the wrong value of the two companies.

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Cronbach’s reliability statistics for corporate governanceissuesThe test of reliability i.e. The Cronbach’s Alpha, for the issues of corporategovernance, is 0.626 which is greater than 0.5 and indicates that thescale for the items under issues of corporate governance is reliable.Table-2. Reliability statistics

Cronbach’s Alpha No. of Items0.626 10

Table-3. KMO and Bartlett’s testKaiser-Meyer-Olkin Measure of Sampling Adequacy. .654Bartlett’s Test of Sphericity Approx. Chi-Square 379.614

Df 45Sig. .000


The KMO and Bartlett’s test shows that the factor analysis isvalid as it satisfies the sampling adequacy criteria as KMO Coefficient(0.654) which is more than 0.5 standard value.Table-4. Communalities

CG Issues Initial ExtractionI-1 1.000 0.743I-2 1.000 0.855I-3 1.000 0.768I-4 1.000 0.742I-5 1.000 0.868I-6 1.000 0.717I-7 1.000 0.879I-8 1.000 0.791I-9 1.000 0.891I-10 1.000 0.792

Extraction Method: Principal Component Analysis.


The commonalities which show how much of the variance in thevariables have been accounted for by the extracted factors. In the presentcase, the communality score of all the variables related to CorporateGovernance issues is more than 0.5.


Table-4 shows the communalities of extraction of all the variablesunder issues of the corporate governance related to the organisation.Principal Component Analysis works on the initial assumption thatall variances are common; therefore, initially, the communalities areall 1. The communalities in the column labelled extraction reflect thecommon variance in the data structure. As per the standard researchstatistical interpretation if all the communalities value extracted, ismore than 0.7 and less than 30 factors analysed, the Eigen value criteriaare acceptable. So, in this case, the researcher has interpreted all thevariables i.e., I-1, I-2, I-3, and the others can be understood as reflectedin the extraction column, where, variance associated with the factorsis a common or a shared variance.Table-5. Total variance explainedComp- Initial Eigen values Extraction Sums of Rotation Sums ofonent Squared Loadings Squared Loadings

Total % of Cumula- Total % of Cumula- Total % of Cumula-Variance tive % Variance tive % Variance tive

1 2.323 23.231 23.231 2.323 23.231 23.231 1.896 18.964 18.962 1.466 14.658 37.889 1.466 14.658 37.889 1.483 14.835 33.793 1.057 10.569 48.458 1.057 10.569 48.458 1.466 14.659 48.454 .980 9.796 58.2535 .857 8.569 66.8226 .802 8.019 74.8417 .778 7.779 82.6208 .690 6.901 89.5219 .596 5.960 95.48010 .452 4.520 100.000



The next step has been to determine how many factors to beretained to extract the data. The Eigen value has been defined as thevariation explained by principal components with respect to its ownfair share of variance & when it exceeds. The Eigen value actuallyreflects the number of extracted factors whose sum should be equal tothe number of items which are subjected to factor analysis. The nextitem shows all the factors extractable from the analysis along withtheir Eigen values. For analysis and interpretation purposes theExtracted Sums of Squared Loading has only been considered. Thetotal variance explained based on the Eigen values shows a cumulativevariance of 48.45% explained by the three loaded factors. The firstfactor has a high variance of 23.23% followed by the second Factorwith variance of 14.65 % and the third factor (10.56%). The varianceof other components with Eigen value is less than 1 were not taken into account (See, Table 5). Further the rotated component matrixconfirms the combination of the statements in to a common factorfurther renamed as factor 1, factor 2 and factor 3.

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Extraction communalities are estimates of variance in eachvariable accounted for factors in the factor solutions. However, theunrotated factor matrix is difficult to interpret owing to the majorityof the variables loading on Factors. In order to ensure meaningfulalignment and extraction of factors, the variables have been rotatedorthogonally by applying Rotated factor matrix. The Rotated methodhas been applied by VARIMAX with Kaizer Normalisation. The Rotationhas converged in 25 iterations and it has shown an improvement inthe total variance explained which is greater than the minimumacceptable percentage. It signifies that the factors that are extractedis highly significant and is accepted for this study.

Table-6. Rotated component matrix

CG Issues Component1 2 3

I-4 .665 .022 .002I-3 .720 .191 -.023I-2 .574 -.117 .155I-1 .635 .127 .148I-7 .276 -.228 .663I-5 .007 .292 .657I-6 .031 .256 .643I-8 .088 .740 .187I-10 -.076 .647 .259I-9 .334 .497 -.182

Extraction Method: Principal Component Analysis.Rotation Method: Varimax with Kaiser Normalization.


Factor-1: Financial transparency & disclosureTotal percentage variance of this factor is highest notably 23.231 andits Eigen value is 2.323. Four variables (I4, I3, I2 and I1) have beenloaded on this factor. The loading value of statement 3 (Role of SEBItowards CG practices: I3) has contributed the highest to this factor i.e.0.720 and the lowest loading rate contributed to this factor is 0.574 forstatement 2 (Role of RBI towards CG practices: I2). Hence, theresearcher has named this factor as “Financial Transparency andDisclosure”.Factor-2: Implementation of SEBI normsTotal percentage variance of this factor is 14.658 and its Eigen valueis 1.466. Three variables (I7, I5, and I6) have been loaded on this factor.The loading value of statement 7 (induction of family members in thecompany board: I7) has contributed the highest to this factor i.e. 0.663and the lowest loading rate has contributed to this factor is 0.643 for


statement 6 (window dressing practices: I2). Hence, the researcherhas named this factor as “Implementation of SEBI norms”.Factor-3: IT and composition of board meeting membersTotal percentage variance of this factor is 10.569 and its Eigen valueis 1.057. Three variables (I8, I10, and I9) have been loaded on thisfactor. The loading value of statement 8 (Free and frank decision: I8)has contributed the highest to this factor i.e. 0.740 and the lowestloading rate contributed to this factor is 0.497 for statement 9(Introduction of IT: I9). Hence, the researcher has named this factoras “IT and composition of Board Meeting Members”.

Implementation

of SEBI norms

IT &

Composition of

Board Meeting

Members

Financial

Transparency

and Disclosure

Issues of

Corporate

Governance

(Developed by the researcher)

The factor analysis came up with three factors i.e. FinancialTransparency & Disclosure, Implementation of SEBI Norms and ITand Composition of Board Meeting Members. The role of RBI and SEBIin maintaining CG practices in banks helps in obtaining transparencyin the banking business in alignment with independent directorsinvolved in the management and the cross-holding of shares by banksleads to Financial Transparency & it augments the Disclosure Practices.Since the corporate governance practices allow the banks to providebest of the financial information to the depositors and the investors,window dressing of financial information under the guidelines of SEBInorms helps the banks to maintain best of the ethical practices.

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Induction of family members and close relatives in the company boardin most of the cases do not bring the best results that could adhere tothe corporate governance practices. The CG practices are veryoutspoken in addressing the disclosure of information to bring in thebest governance practices and the introduction of IT helps them in agreat deal. It gets a further boost with the free and frank board meetingsand the decisions taken in the meeting. The idea of rotation is to reducethe number of factors on which the variables under investigation havehigh loadings.Factor analysis on challenges of corporate governanceFactors associated with the challenges of the corporate governancerelated to an organisation, if any, are examined in the following 10variables.

Table-7. Descriptive statistics

Variables Statements Mean Std.(CG

Challenges) Deviation

C-1 IFRS implementation will benefit the 3.2316 1.17501investors

C-2 Implementation of IFRS system will 3.2153 1.10141bring more transparency in bankinggovernance

C-3 Educating investors about IFRS is difficult 3.1689 1.16357C-4 Adherence to international standard 3.1662 1.19065

practices regarding CG is requiredC-5 Trading practices of scrips of the 3.3025 1.15402

banking industry in the stock exchangesshould be disclosed

C-6 Rights and equitable treatment of 3.2234 1.12069shareholders are followed properly

C-7 Incorporation of women Director in the 3.2779 1.08599Board is desirable

C-8 Ownership structure influences CG 3.1962 1.09878practices in the Indian banking sector

C-9 Implementation of BASEL-III bring more 3.2480 1.11918transparency in banking governance

C-10 Appointment of Independent director will 3.2044 1.16139bring greater transparency in governance


The descriptive statistics of the challenges of corporate governanceis given in the above Table. From the above table, it is clear that the


mean value is highest (i.e. 3.3025) for the statement “Trading practicesof scrips of the banks” followed by 3.2779 for the statement“Incorporation of women Director” and is lowest (i.e. 3.1662) for thestatement “Adherence to international standard practices of CG”. Ahigher mean value i.e. 3.3025 of the statement” Trading practices ofscrips of the banks” indicate that all the three levels of managers opinedthe need of disclosure of the trading practices of scrips of the bankingindustry in the in the stock exchanges, which in turn ensures goodcorporate Governance disclosure practices. The positive shift, with therise in the trading sentiment of bank scrips is possible as theshareholders reward gender diversity on corporate boards with theappointment of women directors in bank board’s across the Indianbanks. On the other hand, the reason for low mean response would beadherence of CG to international standard practices. As the pastexperience highlights the weak CG practices took place in manyadvanced countries resulted in the 2008 international financial crisis,does not justify the potentiality of CG practices carried outinternationally. This may be the reason why the mean value of theresponse is less among other responses.Cronbach’s reliability statistics for corporate governancechallengesThe reliability statistics of the challenges of corporate governance havebeen given in Table 8. The Cronbach’s Alpha for the issues of corporategovernance is 0.639 which is greater than 0.5 and hence indicates thescale of the items under challenges of corporate governance is reliable.Table-8. Reliability statistics

Cronbach’s Alpha No. of Items0.639 10

Table-9. KMO and Bartlett’s testKaiser-Meyer-Olkin Measure of Sampling Adequacy.. 702

Bartlett’s Test of Sphericity Approx. Chi-Square 436.866Df 45

Sig. .000


The KMO and Bartlett’s test shows that the factor analysis isvalid as it satisfies the sampling adequacy criteria as KMO Coefficient(0.702) which is more than 0.5 standard value.

Table.10 shows the communalities of extraction of all the variablesunder challenges of the corporate governance related to the organisation.Principal component analysis works on the initial assumption that all

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the variances are common; therefore, initially, the communalities areall 1.Table-10. Communalities

CG Challenges Initial ExtractionC-1 1.000 .775C-2 1.000 .785C-3 1.000 .818C-4 1.000 .927C-5 1.000 .775C-6 1.000 .749C-7 1.000 .718C-8 1.000 .878C-9 1.000 .745C-10 1.000 .809



The communalities in the column labelled extraction reflect thecommon variance in the data structure. As per the standard researchstatistical interpretation, if all the communalities value extracted ismore than 0.7 and less than 30 factors analysed, the Eigen value criteriaare accepted. So in this case, the researcher has interpreted all thevariables i.e., C-1, C-2 to C-9, which can be understood as reflected inthe extraction column, where variance associated with the factors is acommon or shared variance.

Table-11. Total variance explainedComp- Initial Eigen values Extraction Sums of Rotation Sums ofonent Squared Loadings Squared Loadings

Total % of Cumula- Total % of Cumula- Total % of Cumula-Variance tive % Variance tive % Variance tive

12.414 24.141 24.141 2.414 24.141 24.141 2.102 21.016 21.01621.599 15.993 40.135 1.599 15.993 40.135 1.899 18.989 40.00531.061 10.607 50.742 1.061 10.607 50.742 1.074 10.737 50.7424 .946 9.459 60.2015 .816 8.159 68.3596 .799 7.989 76.3497 .699 6.986 83.3358 .609 6.092 89.4279 .564 5.643 95.06910.493 4.931 100.000




Table.11 reveals that the Eigen values associated with each factorrepresents the variance explained by that particular linear componentand also displays the Eigen value in terms of the percentage of varianceexplained. It is seen from the table that 3 factors extracted togetheraccount for 50.742 % of the total variance.Table-12. Rotated component matrixChallenges Component

1 2 3C-2 .018 .681 .074C-4 -.045 .692 .063C-1 .115 .636 -.024C-3 .090 .629 -.152C-10 .315 .312 .615C-8 .610 .036 -.275C-7 .776 .127 -.022C-6 .689 .035 .050C-9 .677 -.010 .296C-5 .269 .201 .704

Extraction Method: Principal Component Analysis.Rotation Method: Varimax with Kaiser Normalization.

a. Rotation converged in 5 iterations.Source: Researcher’s own estimation

Factor-1: Transparency normsTotal percentage variance of this factor is highest notably 24.141 andits Eigen value is 2.414. Four variables (C8, C7, C6 and C9) have beenloaded on this factor. The loading value of statement 7 (Incorporationof women Director: C7) contributed the highest to this factor i.e. 0.776and the lowest loading rate contributed to this factor is 0.610 forstatement 8 (Influence of Ownership structure on CG practices: C8).Hence, the researcher has named this factor as “Transparency norms”.Interestingly, it has been observed that all the variables are highlycorrelated with each other under this dimension.Factor-2: IFRS challengesTotal percentage variance of this factor is 15.993 and its Eigen valueis 1.599. Four variables (C2, C4, C1 and C3) have been loaded on thisfactor. The loading value of statement 4 (Adherence to internationalstandard practices of CG: C4) contributed highest to this factor i.e.0.692 and the lowest loading rate contributed to this factor is 0.629 forstatement 3 (Educating investors about IFRS: C3). Hence, theresearcher has named this factor as “IFRS challenges”.

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(Developed by the researcher)Testing of hypothesesHypothesis-1: Testing of the association between the majorissues of Corporate Governance practices among the differentlevels of managers of the banking sector:One way ANOVA has been performed to determine the association ofsignificant differences of opinion about the major issues of CG practicesamong the different levels of managers of the banking sectorH01: There is no significant difference of opinion about the major issues

of CG practices among the different levels of managers in thebanking sector.

ANOVAIssues

Sum of df Mean F Sig.Squares Square

Between Groups 25.513 26 .981 2.451 .813Within Groups 136.122 340 .400Total 161.635 366

Shareholders’ Structure

IFRS Challenges

Transparency norms

Challenges of Corporate

Governance

Factor-3: Shareholders structureTotal percentage variance of this factor is 10.607 and its Eigen valueis 1.061. Two variables (C10 and C5) have been loaded on this factor.The loading value of statement 5 (Trading practices of scrips of thebanks: C5) contributed highest to this factor i.e. 0.704 and lowest loadingrate contributed to this factor is 0.615 for statement 10 (Appointmentof Independent directors: C10). Hence, the researcher has named thisfactor as “Shareholders’ Structure”.


As the sig. value is .813 (>.05) null hypothesis has been accepted.Hence there is no significant difference of opinion about the majorissues of CG practices among the different levels of managers in thebanking sector.Hypothesis-2: Testing of the association between the majorchallenges of Corporate Governance practices among thedifferent levels of managers of the banking sector:One way ANOVA has been applied to determine the association ofsignificant differences of opinion about the major challenges of CGpractices among the different levels of managers of the banking sectorH02: There is no significant difference of opinion about the majorchallenges of CG practices.

ANOVAChallenges

Sum of Squaresdf Mean Square F Sig.Between Groups 42.848 1 42.848 2.401 .122Within Groups 6514.498 365 17.848Total 6557.346 366

As the significant value is .122 (>.05) null hypothesis has beenaccepted. Hence, there is no significant difference of opinion about themajor challenges of CG practices among the different levels of managersof the banking sector.Major findings of the studyThe above study revealed the following issues as part of the findings.

The respondents considered for the present study comprisedof nearly 80% male and 20% female managers.

It revealed that most of the managers were in the age groupof 36-45 years (214) and only a few managers were in the agegroup of 35 years or below.

It is also evident from the data that the number ofrespondents with 11-15 years of experience was around 56%,followed by respondents with an experience of 6-10 years while16 years and above representing 22% and 15% of the sample,respectively. There were only 7% of respondents with 0-5years of experience.

It is noticed from the analysis that the distribution of thetotal sample, according to the management level held by therespondents, that around 58% of the respondents were in

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the lower level of management, followed by 32% and 10%respondents in the middle and higher level managementrespectively.

Practical aspects of the major findings of the studyThis research is the result of the responses received from themanagers working in 13 major commercial banks both from theprivate and public sector. The five geographical areas have been takenin this research i.e. Odisha, West Bengal, Andhra Pradesh,Chhattisgarh and Madhya Pradesh. The practical aspect of the majorfindings is as follows;

This research paper tries to find out how far the corporategovernance practices relating to issues and challenges are addressed.For collecting the data the response questionnaire method has beenused among the employees of selected bank branches of these banks ofOdisha, West Bengal, Andhra Pradesh, Chhattisgarh and MadhyaPradesh. This study highlights the practicality of the adoption ofcorporate governance practices in the Indian banking system. FinancialTransparency & Disclosure, implementation of norms of the SEBI andintroduction of information technology are the issues greatly addressedby the different levels of managers working in the different branchesof the banks in the five above discussed states and they all haveexpressed the similar concern about the major issues of CG practices.Transparency norms, IFRS challenges and shareholders’ structure havebeen pointed out as major challenges of CG practice but in the earliercases majority of the respondent managers had shared the same lineof thought and no significant difference in the opinions have beenobserved. If the banks in general and above-selected banks, inparticular, will take care of the above findings of the study then it willbe immensely helpful in bringing greater transparency to the systemleading to improving profitability.LimitationsFirst of all the study is based on a limited number of banks becauseit is not practically possible to include all the banks. Secondly,the study incorporates some important and relevant aspects ofcorporate governance measures as it has not covered all the measuresof corporate governance practices. Thirdly, the study uses the primarydata collected from the bank employees whose responses might havebeen biased.

The scope of the banking environment changes dynamicallywhich necessitates studying further and further on the issues relatingto corporate governance practices.


The scope of this research is confined to 13 banks, both from thepublic sector and the private sector. The SBI, BOB, PNB, UBI, BOI,and Canara Bank belong to the first category and the banks such asICICI, HDFC, Federal Bank, Kotak Mahindra Bank, Yes Bank,IndusInd Bank, and AXIS Bank belong to the later. It is important toemphasize that good corporate governance practices in the bankingindustry is imperative if the industry is to effectively play a key role inthe overall development of India. Perception of different levels ofmanagers is gathered by supplying structured questionnaire amongthe different informants covering the states of Odisha, West Bengal,Andhra Pradesh, Chhattisgarh, and Madhya Pradesh.

Conclusion

The importance of corporate governance is at a stake due to the ever-changing Indian banking scenario that is characterised by economicinstability and gaining momentum in new business practices. In thebackdrop of such changes, the corporate governance in banks is ofparamount importance. Findings of this research reveal that corporategovernance plays a pivotal role in both large banks with higher marketcapitalisation and small banks with comparatively lesser marketcapitalisation. Vital issues, concerning Corporate Governance, to havesurfaced in the wake up of economic liberalisation, deregulation, andprivatisation in the era of globalisation. Since the sig. value is .813>.05 null hypothesis-1 is accepted, that says there is no significantdifference of opinion about the major issues of CG practices among thedifferent levels of managers of the banking sector. Whereas in case of2nd hypothesis the calculated significant value is .122 >.05, thus inthis case also the null hypothesis is accepted that says there is nosignificant difference of opinion about the major challenges of CGpractices among the different levels of managers of the banking sector.Thus, corporate governance has necessitated a more transparentrelationship among the institution’s hierarchy of management, theboard of directors and all other stakeholders.

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