Corporate Governance & Management

IDD, HEAD OFFICE

Corporate Governance-Defined

• System of rules, practices and processes by which a company is

directed and controlled.

• Essentially involves balancing the interests of a

company's many stakeholders.

Corporate Governance in Banks

• Integral element of a bank to ensure Systemic financial stability

• Shape the pattern of credit distribution and overall supply of

financial services.

• To provide products and services to customers efficiently

Corporate Governance in Banks

• To remain financially viable

• Moreover, RCBs being member-driven, must

• communicate and respond effectively to the needs of their members

• successfully engage all members in decision making

• remain viable in the changing economic scenario

Role of the Board

Boards overall Responsibilities.docx

• Approve bank’s business objectives & strategy

• Establish bank’s corporate culture and values;

• Establish the bank’s risk management policy

• Key policy implementation - capital adequacy, compliance, Technology, internal controls and HR.

Role of the BoardBoard’s overall Responsibilities:

• Robust financial system through standard accounting procedure.

• Appoint and oversee the performance of the CEO

• Protect legitimate interests of depositors, shareholders and other

relevant stakeholders

Board CompositionBoard Qualifications and Composition.docx

• Individuals with skills, expertise & necessary qualifications

• Understanding of local, regional and, if appropriate, global

economic and market forces

• Should not have any conflicts of interest with the bank.

Board Composition- Statutory Provision

II. Board Qualifications and Composition:

• Constitution (97th Amendment) Act, 2011 - Board members as

per State Acts - not exceed twenty one members

• 02 Professional Directors

• Adequate representation of SC/ST and women

Board Members-Capacity Building

Training

• Initiation Training for board members

• dedicate sufficient time, budget and other resources for this

purpose, and draw on external expertise as per need

Board Members-Capacity Building

Training – NABARD

• NABARD conducts sensitisation programmes for the Board members

through the BIRD training establishments

• ‘Do’s and Don’ts” for BoDs of Cooperative Banks issued by NABARD

Self Assessment and ImprovementBoard’s own Structure and practices.docx

• Regular self assessment of • Structure, size & composition of Board and Committees

• Suitability of Board members

• Maintain & update organisational rules, bye-laws, HR Policy, Investment Policy, Risk Management Policy

Board Committees

• Audit Committee

• Risk Committee

• ALCO

• Investment Committee

• Roles for each Committee to be clearly spelt out

• Committee to report directly to the Board

ManagementSenior Management.docx

• Core group - responsible and accountable to the Board - day-to-day management of bank

• Senior management to have necessary experience, competencies and integrity

• CEO of the Bank is to be appointed as per the guidelines of ‘Fit & Proper Criteria’ of RBI.

Management-Function• Policy implementation to be consistent with the directions of the

Board

• Keep the Board informed of:

• changes in business strategy, risk strategy/risk appetite; • the bank’s performance and financial condition; • breaches of risk limits or compliance rules; • internal control failures; • legal or regulatory concerns;

Status of Compliance to RBI criteria

Compliance to RBI Fit & Proper criteria

StCBs

• 33 StCBs - 20 CEOs comply with the RBI guidelines.

• Professional Directors in 19 of the 33 StCBs.

DCCBs• Out of 363, CEOs of 194 CCBs as per ‘Fit & Proper Criteria’

• Professional Directors in 209 CCBs

• Compliance reviewed in High Level Committees (HLCs)/ State Level Task Force (SLTF)

Other Issues in Corporate Governance -unique to RCBs

I. Election and Board Supersession.docx• Elections once in 05 years

• Timely conduct of Election process

• Supersession of Boards to be resorted to under exceptional circumstances

• Administrator’s appointment not to exceed 06 months

• 23 StCBs and 277 DCCBs have elected Boards

Other Issues in Corporate Governance -unique to RCBs

II Length of Service of Board members.docx

• Limits on the number of consecutive terms for Board members

• Restriction on re-appointment as a member of Board whose Board has been

superseded on the recommendation of RBI

• Cooperatives can benefit from a regular influx of new ideas and voices.

Other Issues in Corporate Governance -unique to RCBs

Member participation:

Promoting member proximity.docx

• Ensure regular, frequent and meaningful interaction with members

• Members targeted by the competitors (other banks)

• Members remain loyal to the values and goals of the cooperative while availing competing products and services

Other Issues in Corporate Governance -unique to RCBs

Member participation:

Promoting Member proximity

• Remain members on paper – do not actively take part – passive

Members

• Tendency to enrol members just for purpose of election

• Weed out passive members

Other Issues in Corporate Governance -unique to RCBs

Member participation:

Promoting Member proximity

• HR Committee has defined an active member as

“those who have borrowed from the cooperatives during any of previous three years and not having overdue of more than one year, provided their membership is not less than one year old as on 1 April preceding the date of elections. This shall apply to banks as well as societies.

Member Awareness Programmes (MAPs) for members of PACS

• through audio visual media and awareness programmes.

Other Issues in Corporate Governance -unique to RCBs

IV.Formation of new DCCBs and bifurcation of existing DCCBs.docx :

• The necessity for formation/ bifurcation must be explored from long term health and financial feasibility of the Cooperative Bank

• Committee may be established at State level - representatives of RBI, NABARD and State Government to take informed decision on the issue

• Open branches in the uncovered areas of the district - Section 23(1)(b) of the BR Act, 1949 (AACS)

Barriers for effective Governance Practices• Confusion of the role and mission of cooperatives

• Lack of clarity in purpose of governance & concentration of power in the Board

• Emerging conflict between the principles of profitability and

social objectives & weak control mechanism

• Lack of clear rules to adapt to changes in the market

Tools to overcome Barriers• A reference document on shared values and a code of ethics

• A code of conduct and/ or ethics for board and members

• A formal process of director assessment or self-assessment by

each of the directors on periodical basis

Tools to overcome Barriers

• A risk map to identify the insights and challenges to objectives and operations

• A dashboard to track performance indicators, Management

accountability with adequate disclosure to Board

• Strategic project monitoring

Governance Index• Tool to measure effectiveness of the functioning of the Board

• Norms for Commercial Banks based on Clause 49 of the SEBI

listing of Companies and the OECD principles

• Rating chart is proposed on a scale of 1 to 5 - marks

awarded to accomplished parameters and implementation of the

Governance principles.

Way Forward for Effective Corporate Governance in RCBs

• Adopt widely accepted governance practices of the corporate

world

• Ensure member participation

• Stay true to the organisations’ core values and mission

Way Forward for Effective Corporate Governance in RCBs

• Remain competitive in marketplace - priority to members’ needs

• Inspire confidence in the marketplace with reputation of

strong and unique business entities

• Key to success lies in establishing the framework for effective

growth and financial viability

THANK YOUIDD, HEAD OFFICE