Chapter-V Corporate Governance: A Comparative Study...

Comparative Study

145

Chapter-V

Corporate Governance: A Comparative Study on

ICICI Bank and SBI

5.1 Corporate Governance in ICICI Bank-Introduction

The Corporate Governance framework at ICICI Bank lay emphasises

on adhering to Good Corporate Governance norms. And for its

effective implementation Bank has an efficient Board which

constitutes Independent Directors, the separation of the Board’s

supervisory role from the management and the structure based on

Board Committees, which are chaired by independent Directors, to

keep an eye on significant issues.

Philosophy of Corporate Governance

ICICI Bank’s Corporate Governance philosophy encapsulates

regulatory, legal requirements and also several voluntary practices

which aim at a high level of business ethics for safeguarding the

interest of all related stakeholders. The Corporate Governance

framework followed by the Bank also includes significant portion of

the recommendations given by the Corporate Governance Enactments

and initiating regulatory bodies.

Whistle Blower Policy

ICICI Bank has also introduced a Whistle Blower Policy. As per this

policy, employees of ICICI group are free to raise issues related to

accounting policies and procedures related to any area or item and

report them back to the Audit Committee through specific channels.

This system has been communicated to the employees through Bank’s

intranet.

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5.1.1 Board of Directors

ICICI Bank has a broad-based Board of Directors, constituted in

compliance with the Banking Regulation Act, 1949, the Companies

Act, 1956 and listing agreements entered into with stock exchanges,

and in accordance with good Corporate Governance practices. The

Board functions either as a full Board or through various committees

constituted to oversee specific operational areas. The Board has

constituted ten committees, namely, Audit Committee, Board

Governance, Remuneration & Nomination Committee, Corporate

Social Responsibility Committee, Credit Committee, Customer Service

Committee, Fraud Monitoring Committee, Information Technology

Strategy Committee, Risk Committee, Share Transfer &

Shareholders’/Investors’ Grievance Committee and Committee of

Executive Directors. These Board Committees other than the

Committee of Executive Directors currently consist of majority of

independent Directors and most of the Committees are chaired by

independent Directors.

ICICI Bank

Number of Board Members

No. Of

Board

Members

2008 2009 2010 2011 2012

16 16 17 12 12

Source: Annual Reports of the selected private bank from the year 2008-2012

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Number of Board Meetings

No. Of

Board

Meetings

2008 2009 2010 2011 2012

05 08 06 09 06


5.1.2 Audit Committee

The Audit Committee provides direction to the audit function and

monitors the quality of internal and statutory audit. The responsibilities

of the Audit Committee include overseeing the financial reporting

process to ensure fairness, sufficiency and credibility of financial

statements, recommendation of appointment and removal of central

and branch statutory auditors and chief internal auditor and fixation of

their remuneration, approval of payment to statutory auditors for other

permitted services rendered by them, review of functioning of Whistle

Blower Policy, review of the quarterly and annual financial statements

before submission to the Board, review of the adequacy of internal

control systems and the internal audit function, review of compliance

with inspection and audit reports and reports of statutory auditors,

review of the findings of internal investigations, review of statement of

significant related party transactions, review of management

letters/letters on internal control weaknesses issued by statutory

auditors, reviewing with the management, the statement of

uses/application of funds raised through an issue (public issue, rights

issue, preferential issue, etc.), the statement of funds utilised for the

purposes other than those stated in the document notice and the report

submitted by the monitoring agency, monitoring the utilisation of

proceeds of a public or rights issue and making appropriate

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recommendations to the Board to take steps in this matter, discussion

on the scope of audit with external auditors and examination of reasons

for substantial defaults, if any, in payment to stakeholders. The Audit

Committee is also empowered to appoint/oversee the work of any

registered public accounting firm, establish procedures for receipt and

treatment of complaints received regarding accounting and auditing

matters and engage independent counsel as also provide for appropriate

funding for compensation to be paid to any firm/advisors. In addition,

the Audit Committee also exercises oversight on the regulatory

compliance function of the Bank. The Audit Committee is also

empowered to approve the appointment of the CFO (i.e., the whole-

time Finance Director or any other person heading the finance function

or discharging that function) after assessing the qualifications,

experience and background, etc. of the candidate.

Composition of Audit Committee

No. Of

Members 2008 2009 2010 2011 2012

03

Independent

Directors

03

Independent

Directors

04

Independent

Directors

04

Independent

Directors

04

Independent

Directors


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Number of meetings during the year

No. Of

Meetings 2008 2009 2010 2011 2012

06 06 08 07 07


5.1.3 Board Governance, Remuneration & Nomination Committee

The functions of the Committee include recommendation of

appointments to the Board, evaluation of the performance of the

Managing Director & CEO and whole time Directors on predetermined

parameters, recommendation to the Board of the remuneration

(including performance bonus and perquisites) to whole time Directors,

approval of the policy for and quantum of bonus payable to the

members of the staff, framing of guidelines for the Employees Stock

Option Scheme and recommendation of grant of ICICI Bank stock

options to the employees and whole time Directors of ICICI Bank and

its subsidiary companies.

Composition of Committee

No. Of

Members 2008 2009 2010 2011 2012

05

Independent

Directors

05

Independent

Directors

04 Non-

executive

Directors

03

Independent

Directors

03

Independent

Directors


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No. Of

Meetings 2008 2009 2010 2011 2012

04 04 05 07 05


5.1.4 Remuneration policy

The Board Governance, Remuneration & Nomination Committee

determines and recommends to the Board the amount of remuneration,

including performance bonus and perquisites, payable to the whole

time Directors.

5.1.5 Corporate Social Responsibility Committee

The Board of Directors at its Meeting held on October 30, 2009

constituted the Corporate Social Responsibility Committee. The

Committee is empowered to review the corporate social responsibility

initiatives undertaken by the ICICI Group and the ICICI Foundation

for Inclusive Growth, make recommendations to the Board with

respect to the corporate social responsibility initiatives, policies and

practices of the ICICI Group and to review and implement, if required,

any other matter related to corporate social responsibility initiatives as

recommended/ suggested by RBI or any other body.

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No. Of

Members 2010 2011 2012

02 Independent

Directors+ CEO

03 Independent

Directors+ CEO

03 Independent

Directors + CEO



No. Of

Meetings 2010 2011 2012

01 02 02


5.1.6 Credit Committee

The functions of the Committee include review of developments in key

industrial sectors and approval of credit proposals as per authorisation

approved by the Board.

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No. Of

Members 2008 2009 2010 2011 2012

04

Independent

Directors

+CEO

04

Independent

Directors+

CEO

04

Independent

Directors+

CEO

03 Non-

Executive

Directors+

CEO

03

Independent

Directors+

CEO



No. Of

Meetings 2008 2009 2010 2011 2012

21 18 19 21 23


5.1.7 Customer Service Committee

The functions of this Committee include review of customer service

initiatives, overseeing the functioning of the Customer Service Council

and evolving innovative measures for enhancing the quality of

customer service and improvement in the overall satisfaction level of

customers.

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No. Of

Members 2008 2009 2010 2011 2012

04

Independent

Directors

+CEO

04

Independent

Directors+

CEO

05 Non-

Executive

Directors+

CEO

03 Non-

Executive

Directors+

CEO

03

Independent

Directors+

CEO



No. Of

Meetings 2008 2009 2010 2011 2012

04 04 06 06 06


5.1.8 Fraud Monitoring Committee

The Committee monitors and reviews all frauds involving an amount

of 10 million and above so as to identify the systemic lacunae that

may have facilitated fraud and put in place measures to rectify the

same, identify the reasons for delay in detection, report to top

management of the Bank and RBI, monitor progress of investigation,

and recovery position, ensure that staff accountability is examined at

all levels in all the cases of frauds and review of efficacy of the

remedial action taken to prevent recurrence of frauds, such as

strengthening of internal controls and putting in place other measures

as may be considered relevant to strengthen preventive measures

against frauds.

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No. Of

Members 2008 2009 2010 2011 2012

05

Independent

Directors

05

Independent

Directors

05 Non-

Executive

Directors

06 Non-

Executive

Directors

06

Independent

Directors



No. Of

Meetings 2008 2009 2010 2011 2012

09 02 06 06 09


5.1.9 Information Technology Strategy Committee

The Board of Directors at its Meeting held on September 15-16, 2011

constituted Information Technology (IT) Strategy Committee effective

October 31, 2011. The Committee is empowered to approve IT

Strategy and policy documents, ensuring that IT strategy is aligned

with business strategy, reviewing IT risks, ensuring proper balance of

IT investments for sustaining the Bank’s growth, overseeing the

aggregate funding of IT at a Bank-level, and ascertaining if the

management has resources to ensure the proper management of IT

risks and reviewing contribution of IT to businesses.

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No. Of

Members 2012

03

Independent

Directors +

CEO

Source: Annual Reports of the selected private bank from the year 2012


No. Of

Meetings 2012

01

Source: Annual Reports of the selected private bank from the year 2012

5.1.10 Risk Committee

The Committee is empowered to review ICICI Bank’s risk

management policies in relation to various risks (credit, market,

liquidity, operational and reputation risks), investment policies and

strategy and regulatory and compliance issues. The Committee is also

empowered to review risk return profile of the Bank, capital adequacy

based on risk profile of the Bank’s balance sheet, Basel-II

implementation, business continuity plan and disaster recovery plan,

key risk indicators and significant risk exposures and implementation

of enterprise risk management.

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No. Of

Members 2008 2009 2010 2011 2012

04

Independent

Directors

+CEO

04

Independent

Directors+

CEO

05 Non-

Executive

Directors

+ CEO

05 Non-

Executive

Directors

_+ CEO

04

Independent

Directors +

CEO



No. Of

Meetings 2008 2009 2010 2011 2012

06 05 07 08 05


5.1.11 Share Transfer & Shareholders’/Investors’ Grievance

Committee

The functions and powers of the Committee include approval and

rejection of transfer or transmission of equity shares, preference shares,

bonds, debentures and securities, issue of duplicate certificates,

allotment of shares and securities issued from time to time, including

those under stock options, review of shareholders’ and investors’

complaints, delegation of authority for opening and operation of bank

accounts for payment of interest, dividend and redemption of securities

and the listing of securities on stock exchanges.

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No. Of

Members 2008 2009 2010 2011 2012

04

Independent

Directors

03

Independent

Directors

03

Independent

Directors

03

Independent

Directors

03

Independent

Directors



No. Of

Meetings 2008 2009 2010 2011 2012

12 05 04 05 04


5.1.12 Committee of Executive Directors

The powers of the Committee include approval/renewal of credit

proposals, restructuring and settlement as per the authorisation

approved by the Board, approval of detailed credit norms related to

individual business groups, approvals to facilitate introduction of new

products and product variants, programme lending within each

business segment and asset or liability category, including permissible

deviations.

The Committee also approves and reviews from time to time limits on

exposure to any group or individual company as well as approves

underwriting assistance to equity or equity linked issues and

subscription to equity shares or equity linked products or preference

shares. The Committee also exercises powers in relation to borrowing

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and treasury operations as approved by the Board, empowers officials

of the Bank or its Group Companies through execution of Power of

Attorney, if required under the Common Seal of the Bank and further

exercises powers in relation to premises and property related matters.


No. Of

Members 2008 2009 2010 2011 2012

05

Whole

time

Directors

05

Whole

time

Directors

04

Whole

time

Directors

04

Whole

time

Directors

04

Whole

time

Directors


5.2 Corporate Governance Practices in SBI- Introduction

State Bank of India has been committed to the best practices in the area

of Corporate Governance. The Bank states that good Corporate

Governance is complying with legal, regulatory requirements as well

as Good governance that facilitates effective management and control

of business, enables the Bank to maintain a high level of business

ethics and to enhance the value for all of its stakeholders. The

objectives of bank in relation to Corporate Governance have been

summarised below:

• To shield and enhance shareholder worth.

• To safeguard the interest of all other stakeholders such as customers,

employees and society at large.

• To ensure transparency and integrity in all the banking transactions.

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• To ensure answerability for performance and customer service for

achieving excellence.

• To provide corporate leadership of highest standard for others to

emulate.


State Bank of India was formed in 1955 by an Act of the Parliament,

i.e., The State Bank of India Act, 1955 (Act). A Central Board of

Directors was constituted according to the Act. The Bank’s Central

Board draws its powers from and carries out its functions in

compliance with the provisions of SBI Act & Regulations 1955. Its

major roles include:

• Overseeing the risk profile of the Bank;

• Monitoring the integrity of its business and control mechanisms;

• Ensuring expert management, and

• Maximising the interests of its stakeholders

.

The Central Board is headed by the Chairman, appointed under section

19(a) of SBI Act; four Managing Directors are also appointed members

of the Board under section 19(b) of SBI Act. The Chairman and

Managing Directors are whole time Directors. As on 31st March 2012,

there were ten other directors on the Board including eminent

professionals representing Technology, Accountancy, Finance and

Economics. These included representatives of shareholders and staff of

the Bank, nominee officials of Govt. of India and Reserve Bank of

India and directors nominated by the Govt. under Section 19(d) of the

State Bank of India Act, 1955. Apart from the whole time Directors,

comprising Chairman and three Managing Directors, ten other

directors are part of Board.

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5.2.2 Executive Committee of the Central Board

The Executive Committee of the Central Board (ECCB) is constituted

in terms of Section 30 of the SBI Act, 1955. The State Bank of India

General Regulations (46 & 47) provides that, subject to the general or

special directions of the Central Board, ECCB may deal with any

matter within the competence of the Central Board. ECCB consists of

the Chairman, the Managing Directors, the Director nominated under

Section 19(f) of the SBI Act (Reserve Bank of India nominee), and all

or any of the other Directors who are normally residents or may for

the time being be present at any place within India where the meeting

is held . The ECCB meetings are held once every week.


No. Of

Members 2008 2009 2010 2011 2012

18

Members

15

Members

13

Members

15

Members

19

Members

Source: Annual Reports of the selected public bank from the year 2008-2012


No. Of

Meetings 2008 2009 2010 2011 2012

51 53 53 54 53


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The Audit Committee of the Board (ACB) was constituted on 27th

July

1994 and last re-constituted on the 1st July 2011. The ACB functions as

per RBI guidelines and complies with the provisions of Clause 49 of

the Listing Agreement to the extent that they do not violate the

directives/guidelines issued by RBI.

Functions of ACB

• ACB provides direction as also oversees the operation of the

total audit function in the Bank. Total audit function implies the

organisation, operationalisation and quality control of internal

audit and inspection within the Bank, and follows up on the

statutory/external audit.

• ACB reviews the Bank’s financial, Risk Management, Audit

Policies and Accounting Systems of the Bank to ensure greater

transparency.

• ACB reviews the internal inspection/audit plan and functions in

the Bank – the system, its quality and effectiveness in terms of

follow-up

• It obtains and reviews reports from the Compliance Department

in the Bank.

• ACB follows up on all the issues raised in RBI’s Annual

Financial Inspection Reports under Section 35 of Banking

Regulation Act, 1949 and Long Form Audit Reports of the

Statutory Auditors and other Internal Audit Reports. It interacts

with the external auditors before the finalisation of the financial

accounts and reports.

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No. Of

Members 2008 2009 2010 2011 2012

2 Whole

time

Directors+2

Official

Directors+3

Non-

Executive

Directors

2 Whole

time

Directors+2

Official

Directors+3

Non-

Executive

Directors

2 Whole

time

Directors+2

Official

Directors+3

Non-

Executive

Directors

2 Whole

time

Directors+2

Official

Directors+3

Non-

Executive

Directors

2 Whole

time

Directors+2

Official

Directors+2

Non-

Executive

Directors



No. Of

Meetings 2008 2009 2010 2011 2012

09 09 08 11 09


5.2.4 Risk Management Committee

The Risk Management Committee of the Board (RMCB) was

constituted on the 23rd

March 2004, to oversee the policy and strategy

for integrated risk management relating to credit risk, market risk and

operational risk. The Committee was last reconstituted on the 1st July

2011. The Senior Managing Director is the Chairman of the

Committee. This committee meets every quarter.

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No. Of

Members 2008 2009 2010 2011 2012

3

Members+

Managing

Director

5

Members+

Managing

Director

5

Members+

Managing

Director

5 Members+

Managing

Director

4 Members+

Managing

Director



No. Of

Meetings 2008 2009 2010 2011 2012

04 04 04 04 04


5.2.5 Shareholders’/Investors’ Grievance Committee

Shareholders Grievance Committee of the Board (SIGC) was formed

on the 30th

January 2001 to look into the solution of shareholders and

investors complaints regarding transfer of shares, non-receipt of annual

report, and non-receipt of interest on bonds/declared dividends, etc.

The Committee was last reconstituted on the 1st July 2011 and is

chaired by a Non-Executive Director.

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No. Of

Members 2008 2009 2010 2011 2012

3 Members

+ Non-

Executive

Director

5 Members

+Non-

Executive

Director

5 Members

+ Non-

Executive

Director

5

Members

+ Non-

Executive

Director

5 Members

+Non-

Executive

Director



No. Of

Meetings 2008 2009 2010 2011 2012

04 04 04 04 04


5.2.6 Customer Service Committee

The Customer Service Committee of the Board (CSCB) was

constituted on the 26th

August 2004, to bring about ongoing

improvements on a continuous basis in the quality of customer service

provided by the Bank. The Committee was last reconstituted on the 1st

July 2011. The Senior Managing Director on the Committee is the

Chairman.

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No. Of

Members 2008 2009 2010 2011 2012

2 Members

+Managing

Director

5 Members

+Managing

Director

5 Members

+Managing

Director

5 Members

+Managing

Director

5 Members

+Managing

Director



No. Of

Meetings 2008 2009 2010 2011 2012

04 03 04 04 04


5.2.7 IT Strategy Committee of the Board

With a view to tracking the progress of the Bank’s IT initiatives, the

Bank’s Central Board constituted a Technology Committee of the

Board on 26th

August 2004. The Committee has played a strategic role

in the Bank’s technology domain. Based on RBI guidelines received

during the year, the Committee has been renamed as IT Strategy

Committee (ITSC) of the Board and has, as on 18th May 2012, five

members. The Committee is entrusted with the following roles and

responsibilities:

(i) Approving IT strategy and policy documents, ensuring that the

management has put an effective strategic planning process in place.

(ii) Ensuring that the IT Organisational structure complements the

business model and its direction.

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(iii) Ensuring IT investments represent a balance of risks and benefits

and that budgets are acceptable.

(iv) Evaluating effectiveness of management of IT risks and overseeing

the aggregate funding of IT at the Bank level.

(v) Reviewing IT performance measurement and contribution of IT to

businesses.


No. Of

Members 2008 2009 2010 2011 2012

2 Members +

Managing

Director

5 Members +

Managing

Director

5 Members

+Managing

Director

5 Members

+Managing

Director

4 Members

+ Non-

Executive

Director



No. Of

Meetings 2008 2009 2010 2011 2012

04 03 04 04 06


5.3 Analysis and Comparison of Corporate Governance

practices in ICICI Bank and SBI

Concept of Corporate Governance has equal importance in Public as

well as Private Sector Banks. Codes are explicitly defined for

Corporate Governance and reports are mentioned in annual reports,

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however only few of the banks adhere to it practically. Disclosures of

financial and non-financial data is one of the most essential aspects of

Corporate Governance but it has been found that only few banks are

disclosing appropriate information to all the related stakeholders.


Board of Directors

As on 31st March

2012

ICICI Bank SBI

12 members 14 members

Composition of Board of Directors of both the banks is in accordance

with banking regulation act, companies act and standards of Corporate

Governance. And sufficient number of meetings has been conducted

by the board per year. Board of both the banks have representation of

managing directors, professionals and government officials.


Audit Committee

As on 31st March

2012

ICICI Bank SBI

4 Independent

Directors

2 Whole time

Directors+ 2

Official Directors +

2 Non-Executive

Directors

Good Corporate Governance lay emphasises on inclusion of more

independent directors than whole time or official directors in any of the

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committees. Rather it is being preferred that maximum committees

should be headed by Independent directors. Audit Committee plays

indispensible role in efficient conduction of Bank’s working without

any fraudulent practices. Independence of auditors is very essential to

upkeep the standards of workings. ICICI Bank audit committee is only

comprised of independent directors which confirms it compliance with

Corporate Governance Code in far better way than SBI. Although there

has been presence of Non-executive directors on the Audit Committee

in SBI, but Independence of Directors is desired by Corporate

Governance Principles.

5.3.3 Executive Directors

Executive Directors

As on 31st March

2012

ICICI Bank SBI

4 Whole time

Directors

19 Members

Executive Directors are responsible for execution and implementation

of policies and strategies. Executive Directors have dominant position

and all strategic decisions are taken by Executive Directors in both the

Banks. Detailed information about members of the committee is not

mentioned in both the Banks.

5.3.4 Risk Management

ICICI Bank SBI

4 Independent

Directors + CEO

4 Members +

Managing Director

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RMCB has been constituted to oversee the policies and strategies for

integrated risk management relating to credit risk, market risk and

operational risk. Risk Management is one of the essential elements of

any banking corporation, because banks act as trustees for people hard-

earned money. Segregation and designation of constituting members is

not mentioned properly in SBI.

5.3.5 Customer Service

ICICI Bank SBI

3 Independent

Directors + CEO

5 Members+

Managing Director

CSCB is constituted to bring about ongoing improvements on a

continuous basis in the quality of customer service provided by the

bank. Customer Service committee has been working more actively in

Private Sector Bank than Public Sector Bank.

5.3.6 Shareholders’ and Investors’ Grievance

ICICI Bank SBI

3 Independent

Directors

5 Members + Non-

Executive Director

SIGCB has been formed to look into the redressal of shareholders and

investors complaints regarding transfer of shares, non-receipt of annual

report, non- receipt of interest on bonds/declared dividends. This

Committee has presence in both the Banks.

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5.4 Comparison on Corporate Governance Parameters

Corporate Governance

Parameters

ICICI Bank SBI

Statement of Company’s

philosophy on Corporate

Governance

Yes Yes

Structure and strength

of the Board

Board Composition

Board Size

Appropriate Appropriate

Disclosure: Financial

Disclosures/Non-

Financial Disclosures

Financial

Disclosures:

Appropriate

Non-Financial

Disclosures: Not

Appropriate

Financial

Disclosures:

Appropriate

Non-Financial

Disclosures: Not

Appropriate

Audit Committee Present Present

Remuneration

/Compensation Committee

Present Non Existing

Shareholders/Investors

Grievance Committee

Present Present

Health and Environment

Committee

Non Existing Non Existing

IT Strategy Committee Present Present

Nomination Committee Present Non Existing

Ethics and Compliance

Committee

Non Existing Non Existing

Whistle Blowing

Committee

Present Non Existing

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Risk Monitoring

Committee

Present Present

Means of communication • Bank’s

Website

• Press

Releases

• News

Papers

• Bank’s

Website

• Press

Releases

• News

Papers

Corporate Governance code for banking industry is very well-defined.

Annual reports of all the banks include code of Corporate Governance

as an inseparable part. However working procedures of some banks are

not strictly adhering to the code of Corporate Governance. Specific

operational committees have been formed under supervision of the

Board committee for focussing on critical areas.

These operational committees are generally headed by independent

Directors. Working of these committees along with board helps them

to focus on priority areas only. Sub-Committees constituted in Private

Sector Banks are more actively contributing than Public Sector Banks.

Annual reports of Public Sector Banks are not reflecting detailed

information of their constituent members which is one of the basic

requirements for Corporate Governance.

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Chapter-V Corporate Governance: A Comparative Study...

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