S. I. E. S. COLLEGE

OF COMMERCE & ECONOMICS

T.V CHIDAMBARAM MARG,Mumbai – 400022.

BACHELOR OF COMMERCE

(BANKING AND INSURANCE)

2007 - 2008

Corporate Governance for Private Sector Banks in

India

Project guide:

Name of the Student: Reshamvala Nema Saleem

Seat No:

Name of the coordinator:

Date:

DECLARATION

I, Reshamvala Nema Saleem of S. I. E. S. college of T.Y.B.B.I.

(Semester V) hereby declare that I have completed this project

on CORPORATE GOVERNANCE FOR PRIVATE SECTOR BANKS IN

INDIA in the Academic year 2007-2008 . The information

submitted is true and original to the best of my knowledge.

(Signature of the student)

CERTIFICATE

I, Professor AARTHI hereby certify that Reshamvala Nema Saleem of

S. I. E. S. College of T.Y. B.B.I. (Semester V) has completed the project

on corporate governance for private sector banks in India in the

Academic Year 2007 -2008.The information submitted Is true and

original to the best of my knowledge.

_______________

Signature of the Signature of the

Project Co-coordinator Principal

Stamp

ACKNOWLEDGEMENT I, Reshamvala Nema Saleem, the student of S. I.E.S. pursuing my third year of Bachelors of Banking & Insurance, would like to extend my sincere gratitude to all those people who have helped me in the successful completion of my Project on corporate governance for private sector banks in India.

I would like to thank all Professors and course coordinator Professor to whom we shall forever remain indebt for setting the foundation for this course and for assisting in the project whenever help was required.

I also thank all my colleagues who, through one way or the other

may have helped me in my project.

Lastly special thank to parents for their constant support &

assistance, to make these project worth presenting before you.

SYNOPSIS

Corporate governance provides a systematic guidance to the business world of India, to help them to carry good corporate practices. These practices deal with transparency, accountability and the fairness with which business need to be governed. The concept of corporate governance has been gaining increasing importance on the backdrop of Global competition and at the same time it is under close scrutiny of the regulatory bodies in India.

The project begins with underlining the objectives of the study.

The first chapter of the project is the private sector banks in India, which talks about the meaning of private sector banks. The exclusive list of private sector banks functioning in India is also given.

Thereafter, it explains the concept of corporate governance, its emergence, historical perspective, the meaning of term corporate governance and the need for corporate governance.

Next section deals with the recommendations of some of the prominent committees formed to look into the corporate governance aspects. Such committees include Cadbury Committee from England and CII from India. This project deals with the recommendations of these committees in detail.

The regulatory framework and the legal stipulations that is, the SEBI Guidelines on corporate governance are explained in the fourth chapter.

The next chapter deals with the enhancing corporate governance practices for banking organizations recommended by the Basel Committee on Banking Supervision

The project also explains the recent RBI guidelines on corporate governance in private sector banks.

The project ends with a case study on CITIGROUP stating its corporate governance principles and the closure of Citigroup's Private Banking business in Japan.

INDEX

SR.NO

TITLE

1 PRIVATE SECTOR BANKS IN INDIA

2 CONCEPT OF CORPORATE GOVERNANCE

DEFINATION

PRINCIPLES

HISTORY

EMERGENCE

PARTIES INVLOVED IN CORPORATE GOVERNANCE

NEED FOR CORPORATE GOVERNANCE

3 RECOMMENDATIONS OF THE VARIOUS COMMITTES

CADBURY COMMITTEE ON CORPORATE GOVERNANCE

CII – CONFEDERATION OF INDIAN INDUSTRIES

4 LEGAL COMPLAINCE - REGUALTORY FRAMEWORK

SEBI GUIDELINES

5 ENHANCING CORPORATE GOVERNANCE FOR BANKING

6 RECENT RBI GUIDELINES FOR PRIVATE SECTORBANKS

PRIVATE SECTOR BANKS IN INDIA

PRIVATE SECTOR BANKS IN INDIA

Private sector banks are those that are

owned and controlled by private individuals and

corporations. Private banks have been in action in India for a

very long time. In July 1969 GOI nationalized 14 banks

having deposits of Rs.50crores and above. Again, in 1980,

the government acquired 6 more banks with deposits of

more than Rs.200crores. These two rounds of nationalization

were a set back to the development of banks in the private

sector. Not many private sector banks started operations in

India during the period 1969 to 1993.

The amendment to Banking Regulation Act in 1993 paved

the way for entry of new private sector banks and a number

of new banks launched by both industrial and other business

houses have started business in India. However, these banks

are also subject to rules and regulations of RBI and are

functioning under its supervision.

Nearly 25 banks belong to the private sector after

nationalization and these banks are over 50 years old known

as Old Private Sector Banks (OPSB). Some of these are Karur

Vysya Bank, Lakshmi Vilas Bank, Nedungadi bank etc.

A committee was constituted under the chairmanship of M

Narsimham, in the year 1991 and 1998 to examine the

structure and functioning of the existing Indian financial

system. Based on the recommendations of the committee

the Government permitted individuals, corporations, foreign

and non-resident Indians to open private banks with a paid

up capital of at least Rs.100crores. These banks came into

existence after 1995 and are popularly known as New Private

Sector Banks. (NPSBs).

IndusIand was the first private sector bank to start

operations in the post liberalization era. Presently there are

nine NPSBs working in India like Global Trust Bank, IndusInd

Bank, ICICI Bank etc

Bharat Overseas Bank Bank of Punjab

City Union Bank HDFC Bank

Development Credit Bank ICICI Bank

Dhanalakshmi Bank IDBI Bank

Lord Krishna Bank Indus Ind Bank

SBI Commercial & International Bank UTI Bank

Tamilnadu Mercantile Bank

The Bank of Rajasthan

The Baneras State Bank

The Catholic Syrian Bank

The Federal Bank

The Ganesh Bank of Kurduwad

The Jammu & Kashmir Bank

The Karnataka Bank

The Karur Vyasya Bank etc.

Private Sector Banks In India

Old private sector banks

New private sector banks

CONCEPT OF GOVERNANCE

DEFINATION

The term corporate governance has come to mean by two things.

the processes by which companies are directed and controlled.

a field in economics, which studies the many issues arising from the separation of ownership and control.

Relevant rules include applicable laws of the land as well as internal rules of a corporation. Relationships include those between all related parties, the most important of which are the owners, managers, directors of the board, regulatory authorities and to a lesser extent employees and the community at large. Systems and processes deal with matters such as delegation of authority.

The corporate governance structure spells out the rules and procedures for making decisions on corporate affairs. It also provides the structure through which the company objectives are set, as well as the means of attaining and monitoring the performance of those objectives.

Corporate governance is used to monitor whether outcomes are in accordance with plans and to motivate the organisation to be more fully informed in order to maintain or alter organisational activity. Corporate governance is the mechanism by which individuals are motivated to align their actual behaviours with the overall participants.

GOVERNANCE V/S CORPORATE GOVERNANCE

What is Governance: -The term governance is common parlance is used to

mean the way people are governed and the way the affairs of the state are

administered and regulated. This concept, drawn from the public

administration, has received increasingly greater attention in business world

in the sense of direction and control of companies by their top management.

Corporate governance means the idea of ensuring proper management of

companies through the institutions and mechanisms available to the

shareholders. The Cadbury Committee Report (1991) defines corporate

governance as – “A system, by which corporates are directed and

controlled. Corporate governance is a system by which a corporate entity is

directed and controlled in a given economic, political and social

environment. It also entails the interplay between different stakeholders of a

corporation, viz., board of directors, equity holders, debt holders, employees,

customers and government. It deals with how a company fulfills its

obligations to investors and other stakeholders. It is about creating

shareholder wealth while ensuring a fair play to all other stakeholders and

society at large. Stakeholders mean people other than shareholders who have

significant interest in the company. They can be creditors, employees of the

company, government, society etc.

In a company, shareholders are the owners of the company and their

responsibilities lie in selecting the Board of Directors. Board of Directors is

a formal body responsible for the governance of corporate functions. They

review the affairs of the company and direct them.

CORPORATE GOVERNANCE IN INDIAN CONTEXT

In India the concept of corporate governance is gaining importance

because of two reasons.

A) After liberalization, there has been institutionalization of financial

markets, FIs and mutual funds become dominant players in the stock

markets. The market began to discriminate between wealth destroyers.

Corporate governance is a critical byproduct of market discipline.

B) Another factor is the increased role being played by the private sector. Companies are realizing that shareholders love to stay with those corporate

that create values for their shareholders. This is only possible by adopting fair, honest and transparent corporate practices.

PRINCIPLES

Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organisation.

Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports.

Commonly accepted principles of corporate governance include:

Rights and equitable treatment of shareholders: Organisations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings.

Interests of other stakeholders:

Organisations should recognise that they have legal and other obligations to all legitimate stakeholders.

Role and responsibilities of the board:

The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors. The key roles of chairperson and CEO should not be held by the same person.

Integrity and ethical behaviour:

Organisations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.

Disclosure and transparency:

Organisations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organisation should be timely and balanced to ensure that all investors have access to clear, factual information.

HISTORICAL PERSPECTIVE OF CORPORATE GOVERNANCE

The seeds of modern Corporate Governance were probably sown by the

Watergate scandal in the United States. As a result of subsequent

investigations, US regulatory and legislative bodies were able to highlight

control failures that had allowed several major corporations to make illegal

political contributions and to bribe government officials. This led to the

development of the Foreign and Corrupt Practices Act of 1977 in USA that

contained specific provisions regarding the establishment, maintenance and

review of systems of internal control.

This was followed in 1979 by the Securities and Exchange Commission of

USA's proposals for mandatory reporting on internal financial controls. In

1985, following a series of high profile business failures in the USA, the

most notable one of which being the Savings and Loan collapse, the

Treadway Commission was formed. Its primary role was to identify the main

causes of misrepresentation in financial reports and to recommend ways of

reducing incidence thereof. The Treadway report published in 1987

highlighted the need for a proper control environment, independent audit

committees and an objective Internal Audit function. It called for published

reports on the effectiveness of internal control. It also requested the

sponsoring organizations to develop an integrated set of internal control

criteria to enable companies to improve their controls.

Accordingly COSO (Committee of Sponsoring Organizations) was born.

The report produced by it in 1992 stipulated a control framework which has

been endorsed and refined in the four subsequent UK reports: Cadbury,

Rutteman, Hampel and Turnbull. While developments in the United States

stimulated debate in the UK, a spate of scandals and collapses in that country

in the late 1980s and early 1990's led shareholders and banks to worry about

their investments. These also led the Government in UK to recognize that the

then existing legislation and self-regulation were not working.

EMERGENCE OF CORPORATE GOVERNANCE

The term Corporate Governance has found importance only since the decade

of the 1980s. It is mainly due to the financial scandals which rocked the UK

in the 1990s, where billions of pounds were lost. Notable cases of the

collapse of corporations were BCCI, Polly Peck and the pension funds of the

Maxwell Communications Group. The focus on the issues of corporate

governance culminated in the Cadbury Report on the financial aspects of

corporate governance in 1992, the Greenbury Report on directors'

remuneration in 1995, the Preliminary and Final Hampel Reports on

corporate governance in 1997 and 1998.

Also countries like South Africa, France, Belgium, Japan and India have

been discussing issues on corporate governance for some time now. In India

the debate on corporate governance has stimulated mainly because of the

work done in this area by the Government of India, the SEBI and the

Confederation of Indian Industry (CIl).

Today the role of the Board of Directors and that of the management

team in running a company, in promoting and safeguarding the interests

of shareholders and other stakeholders, its manner of functioning, the

pattern of remuneration and incentives, the voting procedure and

protocol etc. are receiving a great deal of learned attention as are the

issues of accountability, enterprise and initiative. There has been an

unprecedented growth in international trade and investment. MNCs

today command enormous financial and non-financial resources have a

distinct global presence, enjoy a great deal of economic and political

clout. With the growing focus on liberalization and globalization, Capital

markets, local and global, can be tapped far more easily by companies

that perform satisfactorily.

Studies of firms in India and abroad have shown that markets and investors

take notice of well-managed companies, respond positively to them, and

reward such companies. A common feature of such companies is that the

have systems in place which allow sufficient freedom to boards to take

decisions towards the progress of their companies, while remaining within

the framework of accountability. In other words they have a system of good

corporate governance.

WHO IS INVOLVED IN CORPORATE GOVERNANCE?

THE TRIPOD

Corporate Governance Tripod

Management Board of Directors Shareholders

Three entities - Management, the board of directors and shareholders play

an important role to ensure good corporate governance. They need to

understand their roles properly and act in harmony with each other.

The Management: The CEO is responsible for actually running the

business. He/she has to ensure the integrity if the fiscal and managerial

controls to maintain a high level of trust of both employees and public.

The Board of Directors: The directors should be accountable to

shareholders and responsible for managing successful and productive

relationships with the corporation's stakeholders. The directors of the board

are required to act in what they believe to be in the best interests of the

company, regardless of specific view expressed by individual (even

controlling) shareholders.

The Shareholders: They own the company and they require timely

information about performance and results. The shareholders should also be

informed about the rights, rules and procedures governing them and enabling

them to participate effectively.

NEED FOR CORPORATE GOVERNANCE

GLOBALIZATION

An efficient tapping of global markets is a critical source of generating value

for owners in most businesses today. The sweeping changes brought about

by globalization include factors like global competition for capital, global

research, international portfolio diversification and convergence of

accounting standards.

Indian companies today realize that there are fewer boundaries in accessing

overseas capital markets. Many companies in India today are seeking a

listing in the other countries. Overseas, investors are accustomed to high

levels of transparency and disclosures in offer documents and shareholder

correspondence such as annual reports.

Corporates, therefore, must have international standards of accounting

practices, disclosure and governance. In doing so, they will reduce risk from

the investor’s perspective, reduce their cost of capital and enhance their

valuation.

Companies and countries are interested in the development of standards and

practices that will be accepted in all the world's major securities markets.

Need of investors and the capital markets are paramount in this.

CONSOLIDATION

Global consolidation in investment management is a trend that has been

gathering momentum in the nineties. This means that institutions will impose

greater leverage on company management. As information requirements

become larger, they become more complex and the role of investor relations

becomes even more important.

The professional institutions in India are setting up guidelines or codes in

line with international standards. They aim at transparency, accountability

and protection of minority shareholders by issuing proper guidance to the

directors, management and auditors. With this investors will get the same

answer from the balance sheet of an Indian company or that of UK or US.

COMPETITION

Competitive activity is increasing in most industries. This leads investors to

use more sophisticated valuation methodologies before parting with their

capital. This forces changes in the ways company’s function. They tend to

increase investor-company contact. They also realize the need to do in-house

research to constantly benchmark themselves against competition. A correct

portrayal of this then helps company's image with investors

Further, non-financial factors will become far more significant factors in

understanding the leading indictors of value. They mainly include

environmental friendliness,' Quality of products, service to customers and

employee participation, each crucial for good corporate governance.

The most common financial aspect is employee Stock Option Plans

(ESOPs). Some corporates, mainly in the technology and knowledge based

industries, are introducing ESOPs and revising remuneration packages to

retain their employees in this competitive environment

TECHNOLOGY

Electronic reporting is taking off with the spread of Internet and improved

communication technologies. By changing information distribution and

content, the electronic provision of information or content, the electronic

provision of information or reporting will become the standard of the future.

This will improve market efficiency and reduce the cost of equity because it

eliminates or reduces uncertainty. The small investor will have a more equal

footing with large investors in terms of access to information. The

enfranchisement of the ultimate owners of capital by allowing them direct

access to the companies in which their capital has been invested will lead to

greater accountability in the governance chain. The web and media shall

make for better information access to the retail investors. The information,

being in the pubic domain will be shared with investors and be available to

anyone anywhere in the world.

RECOMMENDATIONS OF THE VARIOUS COMMITTIES

CADBURY COMMITTEE ON CORPORATE GOVERNANCE

The stated objective of Cadbury committee was “to help to raise the

standards of corporate governance and the level of confidence in financial

reporting and auditing by setting out clearly what it sees as the respective

responsibilities those involved in corporate governance”.

The Cadbury committee report published in December 1992 was well

received. While the recommendations themselves were not compulsory, the

companies listed on the London Stock Exchange were required to clearly

state in their accounts whether or not code had been followed. The

companies who did not comply were required to explain the reasons for that.

Recommendations of the Cadbury committee

The Cadbury Code of Best Practices had 19 recommendations. The

recommendations are in the nature of guidelines relating to the Board of

Directors, Non-executive Directors, Executive Directors and those on

Reporting & Control.

Relating to the Board of Directors these are:

The Board should meet regularly, retain full and effective control over the

company and monitor the executive management.

There should be a clearly accepted division of responsibilities at the

head of a company, which will ensure balance of power and authority,

such that no individual has unfettered powers of decision. In

companies where the Chairman is also the Chief Executive, it is

essential that there should be a strong and independent element on the

Board, with a recognized senior member.

The Board should include non-executive Directors of sufficient caliber

and number for their views to carry significant weight in the Board's

decisions.

The Board should have a formal schedule of matters specifically

reserved to it for decisions to ensure that the direction and control of

the company is firmly in its hands.

There should be an agreed procedure for Directors in the furtherance

of their duties to take independent professional advice if necessary, at

the company's expense.

Directors should have access to the advice and services of the

Company Secretary, who is responsible to the Board for ensuring that

Board procedures are followed and that applicable rules and

regulations are complied with. Any question of the removal of

Company Secretary should be a matter for the Board as a whole.

Relating to the Non-executive Directors recommendations are

Non-executive Directors should bring an independent judgment to

bear on issues of strategy, performance, resources, including key

appointments, and standards of conduct

The majority should be independent of the management and free from

any business or other relationship, which could materially interfere

with the exercise of their independent judgment, apart from their fees

and shareholding. Their fees should reflect the time, which they

commit to the company.

Non-executive Directors should be appointed for specified terms and

reappointment should not be automatic.

Non-executive Directors should be selected through a formal process

and both, this process and their appointment, should be a matter for

the Board as a whole.

For the Executive Directors the recommendations are:

Directors' service contracts should not exceed three years without

shareholders' approval.

There should be full and clear disclosure of their total emoluments and

those of the Chairman and the highest-paid Directors, including

pension contributions and stock options. Separate figures should be

given for salary and performance-related elements and the basis on

which performance is measured should be explained.

Executive Directors' pay should be subject to the recommendations of

a Remuneration Committee made up wholly or mainly of Non-

Executive Directors.

For Reporting and Controls, the Cadbury Code of Best Practices

stipulate that:

It is the Board's duty to present a balanced and understandable

assessment of the company's position.

The Board should ensure that an objective and professional

relationship is maintained with the Auditors.

The Board should establish an Audit Committee of at least 3 Non-

Executive Directors with written terms of reference, which deal

clearly with its authority and duties.

The Directors should explain their responsibility for preparing the

accounts next to a statement by the Auditors about their reporting

responsibilities.

The Directors should report on the effectiveness of the company's

system of internal control.

The Directors should report that the business is a going concern, with

supporting assumptions or qualifications as necessary.

CII- Confederation of Indian Industries

In 1996, CII took a special initiative on Corporate Governance – the first

institutional initiative in Indian industry. The objective was to develop and

promote a code for Corporate Governance to be adopted and followed by

Indian companies, be these in the Private Sector, the Public Sector, Banks or

Financial Institutions, all of which are corporate entities.

The Important Recommendations made by committee formed by CII are as follows:

Board of Directors

The key to good corporate governance is a well functioning, informed board

of directors. The board should have a core group of excellent, professionally

acclaimed non-executive directors who understand their dual role of

appreciating the issues put forward by management, and of honestly

discharging their fiduciary responsibilities towards the company’s

shareholders as well as creditors.

Recommendation 1: Single Tier System

There is no need to adopt the German system of two-tier boards to ensure

desirable corporate governance. A single board, if it performs well, can

maximize long-term shareholder value just as well as a two- or multi-tiered

board. Equally, there is nothing to suggest that a two-tier board, per se, is the

panacea to all corporate problems.

Recommendation 2: Appointment Of Non-Executive Directors

Any listed companies with a turnover of Rs.100crores and above should

have professionally competent, independent, non-executive directors, who

should constitute

• At least 30 percent of the board if the Chairman of the company is a non-

executive director, or

• At least 50 percent of the board if the Chairman and Managing Director is

the same person.

Recommendation 3 : Cap On Directorship

No single person should hold directorships in more than 10 listed companies.

This ceiling excludes directorships in subsidiaries (where group has over

50% equity stake) or associate companies (where group has over 25% but

not more than 50% equity stake )

Recommendation 4: Role Of Non-Executive Directors

For non-executive directors to play a material role in corporate decision-

making and maximizing long-term shareholder value, they need to

• Become active participants in boards, not passive advisors;

• Have clearly defined responsibilities within the board such as the Audit

Committee; and

• Know how to read a balance sheet, profit and loss account, cash flow

statements and financial ratios and have some knowledge of various

company laws. This, of course, excludes those who are invited to join boards

as experts in other fields such as science and technology.

Recommendation 5: Key information that must be reported to and

placed before the board must contain:

• Annual operating plans and budgets, together with up-dated long term

plans.

• Capital budgets, manpower and overhead budgets.

• Quarterly results for the company as a whole and its operating divisions

or business segments.

• Internal audit reports, including cases of theft and dishonesty of a material

nature.

• Show cause, demand and prosecution notices received from revenue

authorities, which are considered to be materially important. (Material nature

is any exposure that exceeds 1 percent of the company’s net worth).

• Fatal or serious accidents, dangerous occurrences, and any effluent or

pollution problems.

• Quarterly details of foreign exchange exposure and the steps taken by

management to limit the risks of adverse exchange rate movement, if

material.

Recommendation 6 : Setting Up Of Audit Committee

Listed companies with either a turnover of over Rs.100crores or a

paid-up capital of Rs.20crores should set up Audit Committees within

two years.

Audit Committees should consist of at least three members, all drawn

from a company’s non-executive directors, who should have adequate

knowledge of finance, accounts and basic elements of company law.

REGULATORY FRAMEWORK:

LEGAL COMPLAINCE

SEBI Guidelines On Corporate Governance

Board Of Directors :

i. The Non-executive Directors on board should not be less than fifty percent of the Board of Directors, Or

ii. In case of a non-executive chairman, at least one-third of board should comprise of independent directors.

iii. A director shall not be a member in more than 10 committees or act as Chairman of more than 5 committees.

Audit Committee:

A. Set Up Of Audit Committee

Minimum of three members -all being Non-executive Directors.

Majority of the members to be independent.

One member must have financial and accounting knowledge

Chairman of the committee shall be an independent Director.

B. Functioning Of Audit Committee

Audit committee shall meet at least thrice a year.

One meeting to be held before finalization of Annual Account’s.

Other two meeting should be held at interval of 6 months.

C. Power Of Audit Committee

To investigate any activity within its terms of reference.

To seek information from any employee.

Remuneration Of Directors

Remuneration of non-executive directors to be decided by the Board of Directors.

Board procedure

i. The Board meeting to be held at least four times a year.ii. The difference of two Board meeting should not be more than four

months. 

Management

The Directors report and the Management Discussions and Analysis report should contain information on following matters

i. Industry structure and developments.ii. Opportunities and Threats. 

iii. Outlook.

iv. Risk and concerns.

Shareholders

The shareholders are to be provided following information before appointment of a new director or re-appointment of a director.

i. Brief resume of the director.

ii. Nature of his expertise in specific functional areas; and

iii. Names of companies in which the person also holds the directorship and the membership of Committees of the board.

Quarterly results, presentation etc. made by companies to analysts shall be put on company's web site.

A committee under the name "Shareholders/ Investors Grievances Committee" to be set up to specifically look into the redressing of shareholder and investors complaints.

Report On Corporate Governance

There shall be a separate section on corporate governance in annual report of the company. The suggested list of items to be included in this report is given as follows:

A brief statement of company’s philosophy on code of governance

Board Of Directors

Composition and category of directors, for example, promoter, executive,

non-executive, nominee

Attendance of each director at board meetings and at the AGM

Number of board meetings held and dates on which held

Audit Committee

Composition, name of members, and chairperson

Meeting and attendance during meeting

Remuneration Committee

Composition, name of members, and chairperson

Attendance during meeting

Remuneration policy

Shareholders Committee

Number of Shareholders’ complaints received so far

Number of pending share transfers

ENHANCING

CORPORATE GOVERNANCE

FOR

BANKING ORGANISATIONS

INTRODUCTION

Banking supervision cannot function if sound corporate governance is not in

place and, consequently, banking supervisors have a strong interest in

ensuring that there is effective corporate governance at every banking

organization. Supervisory experience underscores the necessity of having the

appropriate levels of accountability and checks and balances within each

bank. Put plainly, sound corporate governance makes the work of

supervisors infinitely easier. Sound corporate governance can contribute to a

collaborative working relationship between bank management and bank

supervisors.

Recent sound practice papers issued by the Basel Committee underscore the

need for banks to set strategies for their operations and establish

accountability for executing these strategies. In addition, transparency of

information related to existing conditions, decisions and actions is integrally

related to accountability in that it gives market participants sufficient

information with which to judge the management of a bank.

This guidance refers to a management structure composed of a board of

directors and senior management. The Committee recognizes that there are

significant differences in the legislative and regulatory frameworks across

countries as regards the functions of the board of directors and senior

management. In some cases, it is known as a supervisory board. This means

that the board has no executive functions. In other countries, by contrast, the

board has a broader competence in that it lays down the general framework

for the management of the bank. Owing to these differences, the notions of

board of directors and senior management are used in this paper not to

identify legal constructs but rather to label two decision-making functions

within a bank. These approaches to boards of directors and senior

management are sometimes referred to as corporate governance "structures"

in this paper.

The Basel Committee is issuing this paper to supervisory authorities

worldwide in the belief that it will assist supervisors in promoting the

adoption of sound corporate governance practices by banking organizations

in their countries. Recognizing that different structural approaches to

corporate governance exist across countries, this paper encourages practices

which can strengthen corporate governance under diverse structures.

Corporate Governance in Relation to Commercial Banks

Banks are a critical component of any economy. They provide financing for

commercial enterprises, basic financial services to a broad segment of the

population and access to payments systems. In addition, some banks are

expected to make credit and liquidity available in difficult market conditions.

The importance of banks to national economies is underscored by the fact

that banking is virtually universally a regulated industry and that banks have

access to government safety nets. It is of crucial importance therefore that

banks have strong corporate governance.

From a banking industry perspective, corporate governance involves the

manner in which the business and affairs of individual institutions are

governed by their boards of directors and senior management, affecting how

banks:

Set corporate objectives (including generating economic returns to

owners);

Run the day-to-day operations of the business;

Consider the interests of recognized stakeholders;

Protect the interests of depositors

The Basel Committee has issued several papers on specific topics, where the

importance of corporate governance is emphasized. These include

Principles for the management of interest rate risk (September 1997),

Framework for internal control systems in banking organizations

(September 1998), Enhancing bank transparency (September 1998), and

Principles for the management of credit risk (issued as a consultative

document in July 1999). These papers have highlighted the fact that

strategies and techniques that are basic to sound corporate governance

include:

["Stakeholders" include employees, customers, suppliers and the

community. Due to the unique role of banks in national and local economies

and financial systems, supervisors and governments are also stakeholders.]

The corporate values, codes of conduct and other standards of appropriate

behavior and the system used to ensure compliance with them;

The clear assignment of responsibilities and decision-making

authorities, incorporating a hierarchy of required approvals from

individuals to the board of directors

Establishment of a mechanism for the interaction and cooperation

among the board of directors, senior management and the auditors;

Strong internal control systems, including internal and external audit

functions, risk management functions independent of business lines,

and other checks and balances;

Special monitoring of risk exposures where conflicts of interest are

likely to be particularly great, including business relationships with

borrowers affiliated with the bank, large shareholders, senior

management, or key decision-makers within the firm (e.g. traders);

The financial and managerial incentives to act in an appropriate

manner offered to senior management, business line management and

employees in the form of compensation, promotion and other

recognition; and

Appropriate information flows internally and to the public.

Ensuring an environment supportive of Sound Corporate Governance

The Basel Committee recognizes that primary responsibility for good

corporate governance rests with boards of directors and senior management

of banks; however, there are many other ways that corporate governance can

be promoted, including by:

Government - through laws;

Securities regulators, stock exchanges - through disclosure and

listing requirements;

Auditors - through audit standards on communications to boards of

directors, senior management and supervisors; and

Banking industry associations - through initiatives related to

voluntary industry principles and agreement on and publication of

sound practices.

For example, corporate governance can be improved by addressing a number

of legal issues, such as the protection of shareholder rights; the enforceability

of contracts, including those with service providers; clarifying governance

roles; ensuring that corporations function in an environment that is free from

corruption and bribery; and laws/regulations (and other measures) aligning

the interests of managers, employees and shareholders. All of these can help

promote healthy business and legal environments that support sound

corporate governance and related supervisory initiatives.

The Role of Supervisors

Supervisors should be aware of the importance of corporate governance and

its impact on corporate performance. They should expect banks to

implement organizational structures that include the appropriate checks and

balances. Regulatory safeguards must emphasize accountability and

transparency. Supervisors should determine that the boards and senior

management of individual institutions have in place processes that ensure

they are fulfilling all of their duties and responsibilities.

A bank's board of directors and senior management are ultimately

responsible for the performance of the bank. As such, supervisors typically

check to ensure that a bank is being properly governed and bring to

management's attention any problems that they detect through their

supervisory efforts. When the bank takes risks that it cannot measure or

control, supervisors must hold the board of directors accountable and require

that corrective measures be taken in a timely manner. Supervisors should be

attentive to any warning signs of deterioration in the management of the

bank's activities. Sound corporate governance considers the interests of all

stakeholders, including depositors, whose interests may not always be

recognized. Therefore, it is necessary for supervisors to determine that

individual banks are conducting their business in such a way as not to harm

depositors.

RBI GUIDELINES

ON

CORPORATE GOVERNANCE

FOR

PRIVATE SECTOR BANKS

RBI Guidelines Governance in Private Sector Banks

INTRODUCTION

Banks are “special” as they not only accept and deploy large amount of un-

collateralized public funds in fiduciary capacity, but they also leverage such

funds through credit creation. The banks are also important for smooth

functioning of the payment system. In view of the above, legal prescriptions

for ownership and governance of banks laid down in Banking Regulation

Act, 1949 have been supplemented by regulatory prescriptions issued by

RBI from time to time.

On July 2, 2004, RBI issued draft guidelines on ownership and governance

in private sector banks in India. These guidelines were placed in the public

domain for wider debate and feedback. The RBI issued final policy

guidelines on 28th February 2005 after taking into account the feedback

received. It is considered necessary to lay down a comprehensive framework

of policy in a transparent manner relating to corporate governance in the

Indian private sector banks as described below. The broad principles

underlying the framework of policy relating to corporate governance of

private sector banks would have to ensure that

(i) The ultimate ownership and control of private sector banks is well

diversified. Well-diversified ownership minimizes the risk of misuse or

imprudent use of leveraged funds , it is no substitute for effective regulation.

(ii) The directors and the CEO who manage the affairs of the bank are ‘fit

and proper’ as indicated in circular dated June 25, 2004 and observe sound

corporate governance principles.

(iii) Private sector banks have minimum capital/net worth for optimal

operations and systemic stability.

(iv)The policy and the processes are transparent and fair.

Minimum capital

The capital requirement of existing private sector banks should be on par

with the entry capital requirement for new private sector banks prescribed in

RBI guidelines of January 3, 2001, which is initially Rs.200crore, with a

commitment to increase to Rs.300crore within three years. In order to meet

with this requirement, all banks in private sector should have a net worth of

Rs.300crore at all times. The banks which are yet to achieve the required

level of net worth will have to submit a time-bound programme for capital

augmentation to RBI. Where the net worth declines to a level below

Rs.300crore, it should be restored to Rs.300crore within a reasonable time.

Shareholding

(i) The RBI guidelines on acknowledgement for acquisition or transfer of

shares issued on February 3, 2004 will be applicable for any acquisition of

shares of 5 per cent and above of the paid up capital of the private sector

bank.

(ii) In the interest of diversified ownership of banks, the objective will be to

ensure that no single entity or group of related entities has shareholding or

control, directly or indirectly, in any bank in excess of 10 per cent of the paid

up capital of the private sector bank. Any higher level of acquisition will be

with the prior approval of RBI and in accordance with the guidelines of

February 3, 2004 for grant of acknowledgement for acquisition of shares.

(iii) Where ownership is that of a corporate entity, the objective will be to

ensure that no single individual/entity has ownership and control in excess of

10 per cent of that entity. Where the ownership is that of a financial entity

the objective will be to ensure that it is a well established regulated entity,

widely held, publicly listed and enjoys good standing in the financial

community.

(iv) Banks (including foreign banks having branch presence in India)/FIs

should not acquire any fresh stake in a bank’s equity shares, if by such

acquisition, the investing bank’s/FI’s holding exceeds 5 per cent of the

investee bank’s equity capital as indicated in RBI circular dated July 6, 2004.

(v) As per existing policy, large industrial houses will be allowed to acquire,

by way of strategic investment, shares not exceeding 10 per cent of the paid

up capital of the bank subject to RBI’s prior approval. Furthermore, such a

limitation will also be considered if appropriate, in regard to important

shareholders with other commercial affiliations.

(vi)In case of restructuring of problem/weak banks or in the interest of

consolidation in the banking sector, RBI may permit a higher level of

shareholding, including by a bank.

Directors and Corporate Governance

(i) The recommendations of the Ganguly Committee on corporate

governance in banks have highlighted the role envisaged for the Board of

Directors.

The Board of Directors should ensure that the responsibilities of directors are

well defined and the banks should arrange need-based training for the

directors in this regard. While the respective entities should perform the roles

envisaged for them, private sector banks will be required to ensure that the

directors on their Boards representing specific sectors as provided under the

Banking Regulation Act, are indeed representatives of those sectors in a

demonstrable fashion, they fulfill the criteria under corporate governance

norms provided by the Ganguly Committee and they also fulfill the criteria

applicable for determining ‘fit and proper’ status of Important Shareholders

(i.e., shareholding of 5 per cent and above) as laid down in RBI Circular

dated June 25, 2004.

(ii) As a matter of desirable practice, not more than one member of a family

or a close relative (as defined under Section 6 of the Companies Act, 1956)

or an associate (partner, employee, director, etc.) should be on the Board of a

bank.

(iii) Guidelines have been provided in respect of 'Fit and Proper' criteria for

directors of banks by RBI circular dated June 25, 2004 in accordance with

the recommendations of the Ganguly Committee on Corporate Governance.

For this purpose a declaration and undertaking is required to be obtained

from the proposed / existing directors

(iv)Being a Director, the CEO should satisfy the requirements of the ‘fit and

proper’ criteria applicable for directors. In addition, RBI may apply any

additional requirements for the Chairman and CEO. The banks will be

required to provide all information that may be required while making an

application to RBI for approval of appointment of Chairman/CEO

Due diligence process

The process of due diligence in all cases of shareholders and directors will

involve reference to the relevant regulator, revenue authorities, investigation

agencies and independent credit reference agencies as considered

appropriate.

Transition arrangements

(i) The current minimum capital requirements for entry of new banks is

Rs.200crore to be increased to Rs.300crore within three years of

commencement of business. A few private sector banks that have been in

existence before these capital requirements were prescribed have less than

Rs.200crore net worth. In the interest of having sufficient minimum size for

financial stability, all the existing private banks should also be able to fulfill

the minimum net worth requirement of Rs.300crore required for a new entry.

Hence any bank with net worth below this level will be required to submit a

time bound programme for capital augmentation to RBI for approval.

(ii) Where any existing shareholding of any individual entity/group of

entities is 5 per cent and above, due diligence outlined in the February 3,

2004 guidelines will be undertaken to ensure fulfillment of ‘fit and proper’

criteria.

(iii) Where any existing shareholding by any individual entity/group of

related entities is in excess of 10 per cent, the bank will be required to

indicate a time table for reduction of holding to the permissible level. While

considering such cases, RBI will also take into account the terms and

conditions of the banking licenses.

(iv) Any bank having shareholding in excess of 5 per cent in any other bank

in India will be required to indicate a time bound plan for reduction in such

investments to the permissible limit. The parent of any foreign bank having

presence in India, having shareholding directly or indirectly through any

other entity in the banking group in excess of 5 per cent in any other bank in

India will be similarly required to indicate a time bound plan for reduction of

such holding to 5 per cent.

(v) Banks will be required to undertake due diligence before appointment of

directors and Chairman/CEO on the basis of criteria that will be separately

indicated and provide all the necessary certifications/information to RBI.

(vi) Banks having more than one member of a family, or close relatives or

associates on the Board will be required to ensure compliance with these

requirements at the time of considering any induction or renewal of terms of

such directors.

(vii) Action plans submitted by private sector banks outlining the milestones

for compliance with the various requirements for ownership and governance

will be examined by RBI for consideration and approval.

Continuous monitoring arrangements

(i) Where RBI acknowledgement has already been obtained for transfer of

shares of 5 per cent and above, it will be the bank’s responsibility to ensure

continuing compliance of the ‘fit and proper’ criteria and provide an annual

certificate to the RBI of having undertaken such continuing due diligence.

(ii) Similar continuing due diligence on compliance with the ‘fit and proper’

criteria for directors/CEO of the bank will have to be undertaken by the bank

and certified to RBI annually.

(iii) RBI may, when considered necessary, undertake independent

verification of ‘fit and proper’ test conducted by banks through a process of

due diligence.

CASE STUDY

CITIGROUP INC.CORPORATE GOVERNANCE GUIDELINESAs of January20, 2007

Corporate Governance Mission

Citigroup Inc. (the “Company”) aspires to the highest standards of ethical Conduct: doing what we say; reporting results with accuracy and transparency; and maintaining full compliance with the laws, rules and regulations that govern the Company’s businesses.

Board of Directors

The Board of Directors’ primary responsibility is to provide effective governance over the Company’s affairs for the benefit of its stockholders, and to balance the interests of its diverse constituencies around the world, including its customers, employees, suppliers and local communities. In all actions taken by the Board, the Directors are expected to exercise their business judgment in what they reasonably believe to be the best interests of the Company. In discharging that obligation, Directors may rely on the honesty and integrity of the Company’s senior executives and its outside advisors and auditors.

Number and Selection of Board Members The Board has the authority under the by-laws to set the number of Directors, which should be in the range of 13 to 19, with the flexibility to increase the number of members in order to accommodate the availability of an outstanding candidate or the Board’s changing needs and circumstances. The Board may also appoint honorary directors. Honorary directors are invited to Board meetings, but do not vote on issues presented to the Board. Candidates for the Board shall be selected by the Nomination and Governance Committee, and recommended to the Board of Directors for approval, in accordance with the qualifications approved by the Board and set forth below, taking into consideration the overall composition and diversity of the Board and areas of expertise that new Board members might be able to offer. Directors are elected by the stockholders at each Annual Meeting, to serve for a one-year term, which expires on the date of the next

Annual Meeting. Between Annual Meetings, the Board may elect additional Directors by majority vote to serve until the next Annual Meeting. The Nomination and Governance Committee shall nominate annually one of the members of the Board to serve as Chairman of the Board.

Confidential Voting Policy

It is the Company’s policy that every stockholder shall have the right to require the Company to keep his or her vote confidential, whether submitted by proxy, ballot, internet voting, telephone voting or otherwise. If a stockholder elects, in connection with any decision to be voted on by stockholders at any Annual orSpecial Meeting, to keep his or her vote confidential, such vote shall be kept permanently confidential and shall not be disclosed to the Company, to its affiliates, directors, officers and employees or to any third parties except:(a) As necessary to meet applicable legal requirements and to assert or

defend claims for or against the Company, (b) In case of a contested proxy solicitation, (c) If a stockholder makes a written comment on the proxy card or

otherwise communicates his or her vote to management, or (d) To allow the independent inspectors of election to certify the results

of the vote. Employee stockholders in the Citigroup Common Stock Fund under the plan or one of the Company’s retirement, savings or employee stock ownership plans already enjoy confidential treatment as required by law and, without the need for any action on their parts, will continue to vote their shares confidentially.

Director Independence

At least two-thirds of the members of the Board should be independent. The Board has adopted the Director Independence Standards to assist the Board in making the independence determination. The Director Independence Standards are intended to comply with the New York Stock Exchange (“NYSE”) corporate governance rules and all other applicable laws, rules and regulations regarding director independence in effect from time to time. A Director shall qualify as independent for purposes of service on the Board of the Company and its Committees if the Board has determined that the Director has no material relationship with the Company.

Qualifications for Director Candidates

One of the of the Board's most important responsibilities is identifying, evaluating and selecting candidates for the Board of Directors. The Nomination and Governance Committee reviews the qualifications of potential director candidates and makes recommendations to the whole Board. The factors considered by the Committee and the Board in its review of potential candidates include:• Whether the candidate has exhibited behavior that indicates he or she is committed to the highest ethical standards and Shared Responsibilities.• Whether the candidate has had business, governmental, non-profit or professional experience at the Chairman, Chief Executive Officer, Chief Operating Officer or equivalent policy-making and operational level of a large organization with significant international activities that indicates that the candidate will be able to make a meaningful and immediate contribution to the Board's discussion of and decision-making on the array of complex issues facing a large financial services business that operates on a global scale.• Whether the candidate has special skills, expertise and background that would complement the attributes of the existing Directors, taking into consideration the diverse communities and geographies in which the Company operates.• Whether the candidate has the financial expertise required to provide effective oversight of a diversified financial services business that operates on a global scale.• Whether the candidate has achieved prominence in his or her business, governmental or professional activities, and has built a reputation that demonstrates the ability to make the kind of important and sensitive judgments that the Board is called upon to make.• Whether the candidate will effectively, consistently and appropriately take into account and balance the legitimate interests and concerns of all of the Company’s stockholders and our other stakeholders in reaching decisions, rather than advancing the interests of a particular constituency.

• Whether the candidate possesses a willingness to challenge management while working constructively as part of a team in an environment of collegiality and trust.

• Whether the candidate will be able to devote sufficient time and energy to the performance of his or her duties as a Director. Application of these factors involves the exercise of judgment by the Board.

Lead Director

The Board may appoint a Lead Director. The Lead Director shall: (i) preside at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent Directors; (ii) Serve as liaison between the Chairman and the independent Directors; (iii) Approve information sent to the Board; (iv)Approve meeting agendas for the Board; (v) Approve meeting schedules to assure that there is sufficient time for discussion of all agenda items; (vi)Have the authority to call meetings of the independent Directors; and(vii) If requested by major shareholders, ensure that he or she is available for consultation and direct communication.

Additional Board Service

The number of other public company boards on which a Director may serve shall be subject to a case-by-case review by the Nomination and Governance Committee, in order to ensure that each Director is able to devote sufficient time to perform his or her duties as a Director.Members of the Audit and Risk Management Committee may not serve on more than three public company audit committees, including the Audit and Risk Management Committee of the Company

Interlocking Directorates

No inside Director or executive officer of Citigroup shall serve as a director of a company where a Citigroup outside Director is an executive officer.

Stock Ownership Commitment

The Board and members of senior management are subject to the Stock Ownership Commitment, which provides that for so long as they remain members of the Board or senior management, they shall hold at least 75% of the shares of Company common stock they own on the date they become

subject to the commitment and 75% of the net shares delivered to them pursuant to awards granted under the Company’s equity programs, once certain minimum guidelines have been met, subject to the provisions contained in the commitment.For purposes of these guidelines, the term “members of senior management” shall mean members of the Operating Committee, members of the Management Committee, members of the Business Planning Groups and senior members of corporate staff as disclosed in the Company’s annual report.In 2005, the Company introduced an expanded version of the Stock Ownership Commitment, with a 25% holding requirement that applies prospectively and generally covers those employees who report directly to a member of the Management Committee and those employees one level below them. After the expansion of the Stock Ownership Commitment becomes effective in 2006, approximately 3,000 employees around the world will be subject to the Stock Ownership Commitment. Exceptions to the Stock Ownership Commitment include gifts to charity, estate-planning transactions, transactions with the Company in connection with exercising employee stock options or paying withholding taxes under equity compensation programs, and certain other circumstances.

Retirement from the Board/Term Limits

Directors may serve on the Board until the Annual Meeting of the Company next following their 72nd birthday, and may not be re- elected after reaching age 72, unless this requirement has been waived by the Board for a valid reason. TheCompany has not adopted term limits for Directors.

Director Elections

If a nominee who has been nominated by the Board of Directors receives, in an uncontested election, a number of votes “withheld” from his or her election that is greater than the number of votes cast “for” the election of the Director, such Director shall offer to resign from his or her position as a Director. Unless the Board decides to reject the offer or to postpone the effective date of the offer, the resignation shall become effective 60 days after the date of the election. In making a determination whether to reject the offer or postpone the effective date, the Board of Directors shall consider all

factors it considers relevant to the best interests of the Company. If the Board rejects the resignation or postpones its effective date, it shall issue a public statement that discloses the reason for its decision.

Board Committees

The standing committees of the Board are the Executive Committee, the Audit and Risk Management Committee, the Personnel and Compensation Committee, the Nomination and Governance Committee and the Public Affairs Committee.All members of these committees, other than the Executive Committee, shall meet the independence criteria, as determined by the Board, set forth in the NYSE corporate governance rules, and all other applicable laws, rules or regulations regarding director independence. Committee members shall be appointed by the Board upon recommendation of the Nomination and Governance Committee, after consultation with the individual Directors. Committee chairs and members shall be rotated at the recommendation of the Nomination and Governance Committee. Each committee shall have its own written charter which shall comply with the applicable NYSE corporate governance rules, and other applicable laws, rules and regulations. The charters shall set forth the mission and responsibilities of the committees as well as qualifications for committee membership, procedures for committee member appointment and removal, committee structure and operations and reporting to the Board.

The Chair of each committee, in consultation with the committee members, shall determine the frequency and length of the committee meetings consistent with any requirements set forth in the committee’s charter. The Chair of each committee, in consultation with the appropriate members of the committee and senior management, shall develop the committee’s agenda. At the beginning of the year, each committee shall establish a schedule of major topics to be discussed during the year (to the degree these can be foreseen). The agenda for each committee meeting shall be furnished to all Directors in advance of the meeting, and each independent Director may attend any meeting of any committee, whether or not he or she is a member of that committee. The Board and each committee shall have the power to hire and fire independent legal, financial or other advisors, as they may deem necessary, without consulting or obtaining the approval of senior

management of the Company in advance. The Board may, from time to time, establish or maintain additional committees as necessary or appropriate.

Evaluation of Board Performance

The Nomination and Governance Committee shall conduct an annual review of Board performance, in accordance with guidelines recommended by the Committee and approved by the Board. This review shall include an overview of the talent base of the Board as a whole as well as an individual assessment of each outside Director’s qualification as independent under the NYSE corporate governance rules and all other applicable laws, rules and regulations regarding director independence; consideration of any changes in a Director’s responsibilities that may have occurred since the Director was first elected to the Board; and such other factors as may be determined by the Committee to be appropriate for review. Each of the standing committees (except the Executive Committee) shall conduct an annual evaluation of its own performance as provided in its charter. The results of the Board and committee evaluations shall be summarized and presented to the Board.

Attendance at Meetings

Directors are expected to attend the Company’s Annual Meeting of Stockholders, Board meetings and meetings of committees and subcommittees on which they serve, and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. Information and materials that are important to the Board’s understanding of the business to be conducted at a Board or committee meeting should be distributed to the Directors prior to the meeting, in order to provide time for review. The Chairman should establish a calendar of standard agenda items to be discussed at each meeting scheduled to be held over the course of the ensuing year, and, together with the Lead Director, shall establish the agenda for each Board meeting. Each Board member is free to suggest items for inclusion on the agenda or to raise subjects that are not on the agenda for that meeting. The non-management Directors shall meet in executive session at each Board meeting. The Lead Director shall preside at the executive sessions.

Annual Strategic Review

The Board shall review the Company’s long-term strategic plans and the principal issues that it expects the Company may face in the future during at least one Board meeting each year.

Communications

The Board believes that senior management speaks for the Company. Individual Board members may, from time to time, meet or otherwise communicate with various constituencies that are involved with the Company, at the request of the Board or senior management.

Director Access to Senior Management Directors shall have full and free access to senior management and other employees of the Company. Any meetings or contacts that a Director wishes to initiate may be arranged through the CEO or the Secretary or directly by the Director. The Board welcomes regular attendance at each Board meeting by senior management of the Company. If the CEO wishes to have additional Company personnel attendees on a regular basis, this suggestion should be brought to the Board for approval.

Charitable Contributions

If a Director or an immediate family member of a Director serves as a director, trustee or executive officer of a foundation, university or other non-profit organization (“Charitable Organization”) and such Charitable Organization receives contributions from the Company and/or the Citigroup Foundation, such contributions will be reported to the Nomination and Governance Committee at least annually.

Director Orientation and Continuing Education

The Company shall provide an orientation program for new Directors which shall include presentations by senior management on the Company’s strategic plans, its significant financial, accounting and risk management issues, its compliance programs, its Code of Conduct, its management structure and executive officers and its internal and independent auditors.

The orientation program may also include visits to certain of the Company’s significant facilities, to the extent practical. The Company shall also make available continuing education programs for all members of the Board. All Directors are invited to participate in the orientation and continuing education programs.

Chairman and CEO Performance

The Personnel and Compensation Committee shall conduct an annual review of the Chairman’s and the CEO’s performance. The Board of Directors shall review the Personnel and Compensation Committee’s report in order to ensure that the Chairman and the CEO are providing the best leadership for the Company in the long and short term.

Succession Planning The Personnel and Compensation Committee, or a subcommittee thereof, shall make an annual report to the Board on succession planning. The entire Board shall work with the Personnel and Compensation Committee, or a subcommittee thereof, to nominate and evaluate potential successors to the CEO. The CEO shall meet periodically with the Personnel and Compensation Committee in order to make available his or her recommendations and evaluations of potential successors, along with a review of any development plans recommended for such individuals.

Code of Conduct and Code of Ethics for Financial

Professionals

The Company has adopted a Code of Conduct and other internal policies and guidelines designed to support the mission statement set forth above and to comply with the laws, rules and regulations that govern the Company’s business operations. The Code of Conduct applies to all employees of the Company and its subsidiaries, as well as to Directors, temporary workers and other independent contractors and consultants when engaged by or otherwise representing the Company and its interests. In addition, the Company has adopted a Code of Ethics for Financial Professionals, which applies to the principal executive officers of the Company and its reporting subsidiaries and all professionals worldwide serving in a finance,

accounting, treasury, tax or investor relations role. The Nomination and Governance Committee shall monitor compliance with the Code of Conduct, the Code of Ethics for Financial Professionals and other internal policies and guidelines.

Recoupment of Unearned Compensation

If the Board learns of any misconduct by an executive officer that contributed to the Company having to restate all or a portion of its financial statements, it shall take such action as it deems necessary to remedy the misconduct, prevent its recurrence and, if appropriate, based on all relevant facts and circumstances, punish the wrongdoer in a manner it deems appropriate. In determining what remedies to pursue, the Board shall take into account all relevant factors, including whether the restatement was the result of negligent, intentional or gross misconduct. The Board will, to the full extent permitted by governing law, in all appropriate cases, require reimbursement of any bonus or incentive compensation awarded to an executive officer or effect the cancellation of unvested restricted or deferred stock awards previously granted to the executive officer if:

The amount of the bonus or incentive compensation was calculated based upon the achievement of certain financial results that were subsequently the subject of a restatement,

The executive engaged in intentional misconduct that caused or partially caused the need for the restatement, and

The amount of the bonus or incentive compensation that would have been awarded to the executive had the financial results been properly reported would have been lower than the amount actually awarded.

Insider Transactions

The Company does not generally purchase Company common stock from employees (except in connection with the routine administration of employee stock option and other equity compensation programs). Directors and executive officers may not trade shares of Company common stock during an administrative “blackout” period affecting the Company’s 401(k) plan or pension plan pursuant to which a majority of the Company’s employees are restricted from trading shares of Company common stock or transferring funds into or out of the Company common stock fund, subject to

any legal or regulatory restrictions and the terms of the Company’s Personal Trading Policy.

Stock Options

The Company prohibits the re-pricing of stock options. All new equity compensation plans and material revisions to such plans shall be submitted to stockholders for approval.

Financial Services

To the extent ordinary course services, including brokerage services, banking services, loans, insurance services and other financial services, provided by the Company to any Director or family member of a Director, are not otherwise specifically prohibited under these Corporate Governance Guidelines or other policies of the Company, or by law or regulation, such services shall be provided on substantially the same terms as those prevailing at the time for comparable services provided to non-affiliates.

Personal Loans

Personal loans may be made or maintained by the Company to a Director, an executive officer (designated as such pursuant to Section 16 of the Securities Exchange Act of 1934), or a member of the Operating Committee, or an immediate family member of any such person, only if the loan:(a) Is made in the ordinary course of business of the Company or one of

its subsidiaries, is of a type that is generally made available to the public, and is on market terms, or terms that are no more favorable than those offered to the general public;

(b) Complies with applicable law, including the Sarbanes Oxley Act of 2002 and Regulation of the Board of Governors of the Federal Reserve;

(c) When made does not involve more than the normal risk of collectibility or present other unfavorable features; and

(d) Is not classified by the Company as Substandard (II) or worse, as defined by the Office of the Comptroller of the Currency (OCC) in its “Rating Credit Risk” Comptroller’s Handbook.

Investments/Transactions

The Company, its executive officers and their immediate family members, individually or in combination, shall not make any investment in a partnership or other privately held entity in which a Director is a principal or in a publicly traded company in which a Director owns or controls more than a 10% interest. Except as otherwise provided by this section, a Director or family member of a Director may participate in ordinary course investment opportunities or partnerships offered or sponsored by the Company only on substantially similar terms as those for comparable transactions with similarly situated non-affiliated persons.Executive officers and their immediate family members may not invest in partnerships or other investment opportunities sponsored, or otherwise made available, by the Company unless their participation is approved in accordance with these Guidelines. Such approval shall not be required if the investment opportunity: (i) is offered to qualified employees and investment by executive officers is approved by the Personnel and Compensation Committee; (ii) Is made available to an executive officer actively involved in a business unit, the principal activity of which is to make such investments on behalf of the Company, and is 11 offered pursuant to a co-investment plan approved by the Personnel and Compensation Committee; or (iii) Is offered to executive officers on the same terms as those offered to qualified persons who are not employees of the Company. Transactions, other than ordinary course transactions on third-party terms and conditions, between Directors or executive officers and the Company or any of its subsidiaries valued at less than $50 million require the prior approval of the Transaction Review Committee; such transactions with a value of $50 million or more require the prior approval of the Nomination and Governance Committee.Except with the approval of the Nomination and Governance Committee, no Director or executive officer may invest in a third-party entity if the investment opportunity is made available to him or her as a result of such individual’s status as, respectively, a Director or an executive officer of the Company. No Director or immediate family member of a Director shall receive an IPO allocation from a broker/dealer, including broker/dealers not affiliated with the Company.

Indemnification

The Company provides reasonable directors’ and officers’ liability insurance for the Directors and shall indemnify the Directors to the fullest extent permitted by law and the Company’s certificate of incorporation and by-laws.

Amendments

The Board may amend these Corporate Governance Guidelines, or grant waivers in exceptional circumstances, provided that any such modification or waiver may not be a violation of any applicable law, rule or regulation and further provided that any such modification or waiver is appropriately disclosed.

Exhibit “A” To Corporate Governance Guidelines

Director Independence StandardsA Director shall qualify as independent for purposes of service on the Board of the Company and its committees if the Board has determined that the Director has no material relationship with the Company, either directly or as an officer, partner or employee of an organization that has a relationship with the Company. A Director shall be deemed to have no material relationship with the Company and will qualify as independent provided that (a) The Director meets the Director Independence Standards and (b) if there exists any relationship or transaction of a type not specifically mentioned in the Director Independence Standards, the Board, taking into account all relevant facts and circumstances, determines that the existence of such other relationship or transaction is not material and would not impair the Director’s exercise of independent judgment.These Director Independence Standards have been drafted to incorporate the independence requirements contained in the NYSE corporate governance rules and all other applicable laws, rules and regulations in effect from time to time and are intended to supplement the provisions contained in the Corporate Governance Guidelines. A fundamental premise of the Director Independence Standards is that any permitted transactions between the

Company (including its subsidiaries and affiliates) and a Director, any family member of a Director or their respective primary business affiliations shall be on arms-length, market terms.

Advisory, Consulting and Employment Arrangements During any 12 month period within the last three years, neither a Director nor any family member of a Director shall have received from the Company, directly or indirectly, any compensation, fees or benefits in an amount greater than $100,000, other than amounts paid(a) pursuant to the Company’s Amended and Restated Compensation Plan for Non-Employee Directors or(b) To a family member of a Director who is a non-executive employee of the Company. In addition, no member of the Audit and Risk Management Committee, nor any immediate family member of such individual, nor any entity in which an Audit and Risk Management Committee member is a partner, member or executive officer shall, within the last three years, have received any payment for accounting, consulting, legal, investment banking or financial advisory services provided to the Company.

Business Relationships

All business relationships, lending relationships, deposit and other banking relationships between the Company and a Director’s primary business affiliation or the primary business affiliation of a family member of a Director must be made in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable transactions with non-affiliated persons. In addition, the aggregate amount of payments in any of the last three fiscal years by the Company to, and to the Company from, any company of which a Director is an executive officer or employee or where a family member of a Director is an executive officer, must not exceed the greater of $1 million or 2% of such other company’s consolidated gross revenues in any single fiscal year. Loans may be made or maintained by the Company to a Director’s primary business affiliation or the primary business affiliation of an immediate family member of a Director, only if the loan: (a) Is made in the ordinary course of business of the Company or one of its subsidiaries, is of a type that is generally made available to other customers, and is on market terms, or terms that are no more favorable than those offered to other customers;

(b) Complies with applicable law, including the Sarbanes-Oxley Act of 2002, Regulation O of the Board of Governors of the Federal Reserve, and the Federal Deposit InsuranceCorporation (FDIC) Guidelines; (c) When made does not involve more than the normal risk of collectibility or present other unfavorable features; and (d) Is not classified by the Company as Substandard (II) or worse, as defined by the Office of the Comptroller of the Currency (OCC) in its “Rating Credit Risk” Comptroller’sHandbook.

Charitable Contributions Annual contributions in any of the last three calendar years from the Company and/or the Citigroup Foundation to a foundation, university, or other non-profit organization (“Charitable Organization”) of which a Director or an immediate family member of a Director serves as a director, trustee or executive officer (other than the Citigroup Foundation and other Charitable Organizations sponsored by the Company) may not exceed the greater of $250,000 or 10% of the Charitable Organization’s annual consolidated gross revenue.

Employment/Affiliations

An outside Director shall not:(i) Be or have been an employee of the Company within the last three years; (ii) Be part of, or within the past three years have been part of, an interlocking directorate in which an executive officer of the Company serves or has served on the compensation committee of a company that concurrently employs or employed the Director as an executive officer; or(iii) Be or have been affiliated with or employed by a present or former outside auditor of the Company within the five-year period following the auditing relationship.

An outside Director may not have a family member who:

(i) Is an executive officer of the Company or has been within the last three years;(ii) Is, or within the past three years has been, part of an interlocking directorate in which an executive officer of the Company serves or has served on the compensation committee of a company that concurrently employs or employed such family member as an executive officer; or(iii) (A) is a current partner of the Company’s outside auditor, or a current employee of the Company’s outside auditor who participates in the auditor’s audit, assurance or tax compliance practice, or (B) Was within the last three years (but is no longer) a partner of or employed by the Company’s outside auditor and personally worked on the Company’s audit within that time.

Definitions

For purposes of these independence standards

The term “family member” means any of the Director’s spouse, parents, children, brothers, sisters, mother and father-in law, sons- and daughters-in-law, and brothers and sisters-in-law and anyone (other than domestic employees) who shares the Director’s home;

The term “immediate family members” includes the Director’s spouse and other “family members” (including children) who share the Director’s home or who are financially dependent on the Director; and

The term “primary business affiliation” means an entity of which the Director is an officer, partner or employee or in which the Director owns directly or indirectly at least a 5% equity interest.

BACKGROUND NOTE

Citigroup was formed in 1998 by the merger of Citicorp and Travelers Group. The former's history could be traced to the City Bank of New York, formed in 1812 with an authorized capital of $2 mn. In 1865, the company joined the US national banking system and became The National City Bank of New York. By the 1890s, City Bank became the largest bank in the US and one of the major American banks to establish a foreign department. Branches were started in Asia, Europe and Latin America by the early 1900s.

In 1955, City Bank's name was changed to the First National City Bank of New York, and later shortened to the First National Citibank (FNC). In 1968, First National City Corporation, a bank holding company, became the parent of FNC. In 1974, the holding company changed its name to Citicorp in tune with its global business. In 1976, the First National City Bank became Citibank NA (National Association).

Citigroup was the first financial services company in the US to bring together banking, insurance and investments under one umbrella. By the early 2000s, it had emerged as the largest financial services conglomerate in the world with nearly 275,000 employees and 200 million customer accounts in over 100 countries. Citibank NA was the largest bank in the world in terms of market capitalization

In September 2004, Federal Services Agency (FSA), the financial regulatory body of Japan, announced the closure of Citigroup's Private Banking business in Japan starting from September 30, 2005 onwards. Independent investigations conducted by FSA revealed major violations of law by the Private Banking unit. The case details the irregularities in Citigroup's Japanese operations and highlights the importance of good governance.

On September 17, 2004, the Financial Services Agency (FSA) the banking and financial services regulatory body of Japan, announced that it had revoked the licenses of the four Citigroup offices in Japan. Citigroup was asked to withdraw from the Private Banking business in Japan after several instances of illegal conduct of business by Citibank Japan came to light.

The four branches, one in Tokyo's Marunouchi business district and three satellite branches in Fukuoka, Nagoya and Osaka, employing around 400 people, represented Citigroup's Private Banking business in Japan The winding up of business commenced from September 29, 2004 onwards by suspending all new transactions with customers.

Incorporated in 2001, FSA had been keeping a close eye on the working of foreign and domestic banks in Japan .It uncovered a number of acts injurious to public interest, serious violations of law and regulations and extremely inappropriate transactions in the Private Banking unit.

FSA further said that Citigroup's management in Japan was solely driven by profit motive and had created a law-evading sales system, breaking Japan's banking laws and regulations. The irregularities at the Private Banking unit were preceded by continued failure to improve internal controls despite regulatory warnings over the past three years and a reprimand by the FSA in May 2004.

After the unit was asked to wind up its operations, Charles O Prince (Prince), CEO, Citigroup, acknowledged the irregularities saying, "I sincerely apologize to customers and the public for the company's failure to comply with legal and regulatory requirements in Japan. Senior staff in the private bank had put short-term profits ahead of the bank's long-term reputation and broken the law. It was a unique breakdown in Japan due to the individuals involved."

BIBLIOGRAPHY

The whole project is with the courtesy of the following books, periodicals, newspaper articles and sites:Books:-

Leadership & Corporate Governance- A.V Vedpuriswar

Business Ethics & Corporate Governance- Vivek Gupta A review of current banking, theory and practice –

S.K Basu

Business ethics and managerial values- S.K Bhatia

Newspapers:-

The Economic Times

Periodicals:-

Economic and Political Weekly Professional Banker

Web sites: -

www.wikipedia.com www.corgov.net

www.citigroup.com