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Governance is in fact a reform package to strengthen the banks and corporates with the objective of making them more accountable, open, transparent, democratic and participatory. Good governance is equitable and effective governance that promotes the rule of law, says Sardar NS Gujral, Chairman and Managing Director, Punjab & Sind Bank.
It is now the turn of the banks to embrace the concept of corporate governance. Today corporate governance is being looked upon as a distinctive brand and the benchmark in the profile of banking excellence. The Milton Friedman's famous formulation that "the business of business is business" and the sole social responsibility of a company is to maximize profits for its owners (shareholders) has outlived its relevance. The corporations of today are no longer sheer economic entities. They are the engines of economic and social transformation; a corporation is a social institution whose responsibilities extend far beyond the well-being of its equity owners to giving security and a good life to its employees, dealers, customers, vendors, etc. Their whole life hinges on the well-being of corporation. The social responsibility and being a good corporate citizen have become the buzzwords in the international arena and assumed importance for long-term success of the corporations. Corporate governance and responsibility issues have come to the fore in response to three interrelated structural changes taking place in the Indian economy, namely: Globalization of the economy, corporatization of the enterprises and institutionalization of the capital markets. The information technology revolution has lead to dearth of distance, and facilitated communication at the speed of thought. People contact across the nations have now become instantaneous. In the exponentially shortening product and service life cycles, banks are required to continuously innovate, redefine and recreate and think out of the box and compete for marketing of their products and services and for meeting their capital requirements as well.
Globalization, among others, involves the movement of financial capital to emerging markets both in the form of foreign investment and in terms of investment in the capital markets. Individual investors, funds, banks, foreign institutional investors base their investment decisions not only on company's outlook and financials but also on its reputation and governance. It is the growing need of the banks to access financial resources, both domestic and foreign, to improve their client base and also to increase their capital to meet capital adequacy requirements as per international accounting standards being implemented by Reserve Bank of India through financial sector reforms, which has brought corporate governance into sharp focus and has made it an indispensable requirement for survival, progress and growth. Regulatory bodies for capital market also feel that corporate governance is a requirement for the existence of any entity in the market as a whole and as a precondition to the listing requirement. As per clause 49 of the listing agreement all the companies in India including public sector banks bringing out their Initial Public Offers (IPOs) are required to comply with the conditions of corporate governance and obtain a certificate of compliance from the statutory auditors of the company and annex the same with the director's report to be sent annually to all the shareholders of the company/bank to the stock exchanges along with annual returns of the company.
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