Corporate Governance in Indian Banking Sector - PNB

Corporate Governance in Indian Banking Sector -
Punjab National Bank (PNB)
A Project Submitted To
University Of Mumbai For Partial Completion Of The Degree
Of Bachelor In Commerce (Banking And Insurance)
Under The Faculty Of Commerce.
By
MR. SAIRAJ ANIL NAIK
ROLL NO. 06
Under the guidance of
PROF. MRS. MEENAKSHI ARYA
K.G. JOSHI COLLEGE OF ARTS
AND N.G. BEDEKAR COLLEGE OF COMMERCE,
THANE (W)
March 2019
Declaration by learner
I the undersigned Miss / Mr. Sairaj Anil Naik here by, declare that the work embodied
in this project work titled “Corporate Governance in Indian Banking sector- Punjab
National Bank (PNB)”, forms my own contribution to the research work carried out
under the guidance of Prof. Mrs. Meenakshi Arya is a result of my own research work
and has not been previously submitted to any other University for any other Degree /
Diploma to this or any other University.
Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.
I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.
Mr. Sairaj Anil Naik
Certified by
Prof. Mrs. Meenakshi Arya

Acknowledgment
To list who all have helped me is difficult because they are so numerous and the depth
is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me chance to do
this project.
I would like to thank my principal, Dr. (Mrs.) Suchitra A. Naik for providing the
necessary facilities required for completion of this project.
I take this opportunity to thank our Coordinator, Dr. (Mrs.) Mrunmayee R. Thatte
for her moral support and guidance.
I would also like to express my sincere gratitude towards my project guide Prof. Mrs.
Meenakshi Arya whose guidance and care made the project successful.
I would like to thank my college library, for having provided various reference books
and magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly help me
in the completion of the project especially my parents and peers.
ABSTRACT
Banks and financial institutions have been making pivotal contributions over
the years to nation’s economic growth and development. Government-owned (Public
Sector) banks have played a major role in economic development. During the last few
years, these institutions are slowly getting “corporatized” and consequently Corporate
Governance issues in banks assume greater significance in the coming years.
Considering the importance of the practice of Corporate Governance in the banking
sector and how it helps banking industry in India in terms of bringing more transparency
and overall growth of banking sector, Punjab National Bank has been taken as sample
bank for the study and tried to analyse to what extent Corporate Governance norms is
being implemented in Punjab National Bank, one of the largest bank in public sector.
The Corporate Governance practices of Punjab National Bank are analysed using the
annual reports of 2012-13 and 2017-18 and find the failure of corporate governance in
PNB scam. I have found out that what changes in the Corporate Governance practices
are happened in PNB in those 5 years. The Corporate Governance practices are
analysed with respect to shareholding pattern, board composition, various mandatory
and non-mandatory committees like audit committee, remuneration committee, and
shareholders’ and customers’ complaints. The study concluded by saying that overall
Corporate Governance practices of Punjab National Bank are good. The
implementation of Corporate Governance norms is increasing year on year which is a
sign of good governance.
(Keywords- Clause 49, Corporate Governance, Punjab National Bank, PNB scam,
Shareholding Pattern.)
INDEX
Chapter Sub- Title Page No.
No. points
1 Introduction 1
1.1 Meaning 2-4
1.2 Definitions 5
1.3 Corporate Governance and the Board of Directors 5-6
1.4 Good and Bad Governance 6-7
1.5 Benefits of corporate governance 7
1.6 Principles of corporate governance 8
1.7 Corporate Governance history in India 9
1.8 Important issues in corporate governance 10-11
1.9 Indian Model of Corporate Governance 12-13
1.10 Role of Law in Corporate Governance 14
1.11 Perspective of Corporate Governance 14
1.12 Mechanism and controls of corporate governance 15-17
1.12.1 Internal corporate governance Controls
1.12.2 External Corporate Governance Controls
1.13 Overview of Bank Corporate Governance 17
1.14 Corporate Governance in Banks 18
1.15 The significant of corporate governance in Banking 19-21
scenario
1.16 Evolution of Corporate Governance in Banking 22
sector in India
1.17 Need of corporate governance in Banks 23
1.18 Corporate governance in Private sector banks 24
1.19 Corporate governance in Public sector banks 24
1.20 Punjab National Bank (PNB) 25-28
1.20.1 History of PNB
1.20.2 Corporate governance in PNB
1.20.3 Need and objectives of the code
1.20.4 Banks relief system
1.20.5 Philosophy of code
1.20.6 General standards of conduct
1.21 Conflict of interest 29-30
1.21.1 Employment/outside employment
1.21.2 Business interest
1.21.3 Applicable laws
1.21.4 Disclosure standards
1.21.5 Use of banks assets and resources
1.22 Confidentiality and fair dealings 30-31
1.22.1 Banks confidentiality information
1.22.2 Other confidentiality information
1.23 PNB scam 32-33
1.23.1 Understanding the scam
1.23.2 Corporate governance issue in scam
2 Research Methodology 34
2.1 Objectives of study 35
2.2 Scope of study 36
2.3 Hypothesis of study 36
2.4 Limitation of study 36
2.5 Significance of study 37
2.6 Selection of problem 37
2.7 Sample size 37
2.8 Data collection 37
3 Review of literature 38
3.1 What is review of literature 39
3.2 Definition of Literature Review 39
3.3 Writing of Literature review 39-40
3.4 Important of Literature review 40
3.5 Types of sources for review 40
4 Data Analysis, Interpretation and Presentation 51-71
5 Conclusion and Suggestions 72-75
List of Tables
Table No. Particulars Page No.
1 Shareholding pattern F.Y. 2012-13 52
2 Shareholding pattern F.Y. 2017-18 54
3 Board Governance of PNB 55
4 Complaint Index of PNB 57
5 Disclosure index of PNB 58
6 Remuneration Committee Index of PNB 59
7 Audit Committee Index of PNB 60
8 Directors Report of PNB 62
9 Risk management committee of PNB 63
10 Management committee Index 65
11 Head Office Credit Approval Index 67
12 Special committee Index of PNB 68
List of Charts
Chart No. Particulars Page No.
1 Shareholding Pattern of PNB (F.Y. 2012-13) 53
2 Shareholding Pattern of PNB (F.Y. 2017-18) 54
3 Attendance ratio of Board directors in meetings 56
4 ACB Attendance ratio of Directors 61
5 NPA ratio before and after scam 62
6 Risk Management Committee 64
7 Management Committee attendance of directors 66
8 Head Office Committee Attendance ratio 67
9 Special Committee Attendance ratio of directors 69
Abbreviations:
PNB- Punjab National Bank
CG- Corporate Governance
ACB- Audit Committee of the Board
Corporate Governance in Indian Banking Sector - Punjab National Bank
Chapter no. 1: Introduction
1
1.1. MEANING:
Simply stated ‘Governance’ means the process of decision making and the
process by which decisions making and the process by which decisions are
implemented. The word ‘governance’ comes from the Latin word ‘gubernare’ to steer.
The term Corporate Governance is understood and defined in various ways.
Governance makes decisions that define expectations, grants power, or verify
performance. It consists either of a separate process or of specific part of the
management or leadership processes. Sometime people setup a governance to operate
these processes and system. In the case of a business or a non-profit organization
governance develops and manages the consistent, cohesive policies, processes and
decision making for a given area of a responsibility.
The meaning of Corporate Governance can be explained as about promoting

corporate fairness, transparency and accountability. It is concerned with the structures
and process for decision making, accountability, control and behaviour at top level
organization. It influences the organizations objectives, risk monitoring and
performance optimization. Corporate Governance is the collection of mechanism
processes and relations by which corporation are controlled and directed. Governance
structure and principles identify the distribution of rights and responsibility among
different participants in the corporation (such as the board of director, managers,
shareholders, creditors, auditor’s regulators, and other stakeholders) and includes the
rules and procedures for making decisions in corporate affairs. Corporate Governance
2
is necessary because of the possibility of conflicts of interests between the stakeholders,

primarily between shareholders and upper management or among shareholders.
Corporate Governance includes the processes through which corporation’s

objectives are set and pursued in the context of the social regulatory and market
environment. These include monitoring the actions, policies, practices, and decisions
of corporations, their agents, and affected stake brokers. Corporate
Governance practices can be scan as attempts to align the interest of

stakeholders. Interest in the Corporate Governance practices of modern corporations
particularly in relation to accountability, increased following the high profile collapses
of a number of large corporations in 2001-2002 many of which involved accounting
fraud and then again after the recent financial crisis in 2008.
Corporate Governance is the set of process, customs, policies, laws and

institutions affecting the way a corporation id direction, administered or controlled.
Corporate Governance also includes the relationships among the many stakeholders
involved and the goals for which the corporation is governed. The principal
stakeholders are the shareholders, management and the board of directors. Other
stakeholders include employees, suppliers, customers, banks and other lenders,
regulators, the environment and the community at large.
Corporate Governance is a multifaceted subject. An important part of Corporate

Governance deals with accountability, fiduciary duty, disclosure to shareholders and
other, and mechanism of auditing and control. In this sense, Corporate Governance
players should comply with codes to the overall good of all constituents another
important focus is economic efficiency, both between the corporations as well as
externally. In this economy view the Corporate Governance system should be designed
in such a way as to detect and prevent frauds. Some argue that the firm should act not
only in the interest of the shareholders but also off all the other stakeholders.
Corporate Governance is the system by which companies are directed and

controlled by the management n the best interest of the shareholders and the others
ensuring greater transparency and better and timely financial reporting. The board of
directors is responsible for governance of their companies. Corporate Governance is
needed to create a corporate culture of consciousness, transparency and openness. It
refers to combination of laws, rules and regulations, procedures and voluntary practices
3
to enable the companies to maximize the shareholders long term value. It should to
increasing customer satisfaction, shareholders value and wealth.
The board of directors is the primary direct stakeholder influencing Corporate

Governance. Directors are elected by shareholders or appointed by other board
members, and they represent shareholders of the company. The board is tasked with
making important decisions, such as corporate officer appointments, executive
compensation and dividend policy. In some instances, board obligations stretch beyond
financial optimization, when shareholder resolutions call for certain social or
environmental concerns to be prioritized. Boards are often made up of inside and
independent members. Insiders are major shareholders, founders and executives.
Independent directors do not share the ties of the insiders, but they are chosen because
of their experience managing or directing other large companies. Independents are
considered helpful for governance because they dilute the concentration of power and
help align shareholder interest with those of the insiders.
Corporate Governance deals with the manner the providers of finance guarantee
themselves of getting a fair return on their investment. Corporate Governance clearly
distinguishes between the owners and the managers. The managers are the deciding
authority. In modern corporations, the functions/ tasks of owners and managers should
be clearly defined, rather, harmonizing Corporate Governance deals with determining
ways to take effective strategic decisions. It gives ultimate authority and complete
responsibility to the Board of Directors. In today’s market- oriented economy, the need
for Corporate Governance arises. Also, efficiency as well as globalization is significant
factors urging Corporate Governance. Corporate Governance is essential to develop
added value to the stakeholders.
Corporate Governance ensures transparency which ensures strong and balanced

economic development. This also ensures that the interests of all shareholders (majority
as well as minority shareholders) are safeguarded. It ensures that all shareholders fully
exercise their rights and that the organization fully recognizes their rights. Corporate
Governance has a broad scope.
4
1.2 DEFINITIONS:
 Cadbury Report (UK), 1992:
“Corporate Governance is the system by which company are directed

and controlled…”
 Sir Adrian Cadbury:
“…to do with Power and Accountability; who exercises power, on

behalf of whom, how the exercise of power is controlled.”
 OECD Definition:
“Corporate Governance involves a set of relationships between a

company’s management, its board, its shareholders and others stakeholders also
the structure through which objectives of the company are set, and the means of
attaining those objectives and monitoring performance are determined.”
 ICSI Definition:
“Corporate Governance is the application of best management practices,

compliance of law in true letter and spirit and adherence to ethical standards for
effective management and distributions of wealth and discharge of social
responsibility for sustainable development of all stakeholders.”
1.3 CORPORATE GOVERNANCE AND THE BOARD OF

DIRECTORS:
The board of directors is the primary direct stakeholder influencing Corporate

Governance. Directors are elected by shareholders or appointed by other board
members, and they represent shareholders of the
company. The board is tasked with making important decisions, such as corporate
officer appointments, executive compensation and dividend policy. In some instances,
board obligations stretch beyond financial optimization, when shareholder resolutions
call for certain social or environmental concerns to be prioritized.
Boards are often made up of inside and independent members. Insiders are
major shareholders, founders and executives. Independent directors do not share the
5
ties of the insiders, but they are chosen because of their experience managing or
directing other large companies. Independents are considered helpful for
governance because they dilute the concentration of power and help align shareholder
interest with those of the insiders.
Board of
directors and
commitee
Legal and
Policies and
regulatory
procedures
framework
Corporate
Governance
Transperancy
Organisational
and
heirarchy
Accountibility
Monitoring and
internal control
1.4. GOOD AND BAD GOVERNANCE:
Bad Corporate Governance can cast doubt on a company's reliability, integrity

or obligation to shareholders which can have implications on the firm's financial health.
Tolerance or support of illegal activities can create scandals like the one that rocked
Volkswagen AG in 2015, when it was revealed that the firm had rigged
engine emissions tests in America and Europe. Volkswagen saw its stock shed nearly
half its value in the days following the start of the scandal, and its global sales in the
first full month following the news fell 4.5%.
6
Companies that do not cooperate sufficiently with auditors or do not select

auditors with the appropriate scale can publish spurious or noncompliant financial
results. Bad executive compensation packages fail to create optimal incentive for
corporate officers. Poorly structured boards make it too difficult for shareholders to
oust ineffective incumbents. Corporate Governance became a pressing issue following
the 2002 introduction of the Sarbanes-Oxley Act in the United States, which was
ushered in to restore public confidence in companies and markets after accounting fraud
bankrupted high-profile companies such as Enron and WorldCom.
Good Corporate Governance creates a transparent set of rules and controls in

which shareholders, directors and officers have aligned incentives. Most companies
strive to have a high level of Corporate Governance. For many shareholders, it is not
enough for a company to merely be profitable; it also needs to demonstrate
good corporate citizenship through environmental awareness, ethical behaviour and
sound Corporate Governance practices.
1.5. BENEFITS OF CORPORATE GOVERNANCE:
1. Good Corporate Governance ensures corporate success and economic growth.

2. Strong Corporate Governance maintains investor’s confidence, as a result of
which, company can raise capital efficiently and effectively.
3. It lowers the capital cost.
4. There is the positive impact on the share price.
5. It provides proper inducement to the owners as well as managers to achieve the
objectives that are in interest of the shareholders and the organization.
6. Good Corporate Governance also minimizes wastages, corruption, risks and
mismanagement.
7. It helps in brand formation and development.
8. It ensures organization is managed in a manner that fits the best interests to all.
7
1.6. PRINCIPLES OF CORPORATE GOVERNANCE:
Contemporary discussions of Corporate Governance tend to refer to principles raised

in three documents released since 1990: The Cadbury Report (UK, 1992), the
Principles of Corporate Governance (OECD, 1999, 2004 and 2015), and the Sarbanes-
Oxley Act of 2002 (US, 2002). The Cadbury and Organization for Economic Co-
operation and Development (OECD) reports present general principles around which
businesses are expected to operate to assure proper governance. The Sarbanes-Oxley
Act, informally referred to as Sarbox or Sox, is an attempt by the federal government
in the United States to legislate several of the principles recommended in the Cadbury
and OECD reports.
 Rights and equitable treatment of shareholders:
Organizations should respect the rights of shareholders and help

shareholders to exercise those rights. They can help shareholders exercise their
rights by openly and effectively communicating information and by encouraging
shareholders to participate in general meetings.
 Interests of other stakeholders:
Organizations should recognize that they have legal, contractual, social, and
market driven obligations to non-shareholder stakeholders, including employees,
investors, creditors, suppliers, local communities, customers, and policy makers.
 Role and responsibilities of the board:
The board needs sufficient relevant skills and understanding to review and
challenge management performance. It also needs adequate size and appropriate
levels of independence and commitment.
 Integrity and ethical behavior:
Integrity should be a fundamental requirement in choosing corporate

officers and board members. Organizations should develop a code of conduct for
their directors and executives that promotes ethical and responsible decision
making.
8
 Disclosure and transparency:
Organizations should clarify and make publicly known the roles and
responsibilities of board and management to provide stakeholders 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 organization should be timely and balanced to ensure that
all investors have access to clear, factual information.
1.7. CORPORATE GOVERNANCE HISTORY IN INDIA:
Corporate Governance concept emerged in India after the second half of 1996
due to economic liberalization and deregulation of industry and business. With the
changing times, there was also need for greater accountability of companies to their
shareholders and customers. The report of Cadbury Committee on the financial aspects
of Corporate Governance in the U.K. has given rise to the debate of Corporate
Governance in India.
Need for Corporate Governance arises due to separation of management from

the ownership. For a firm success, it needs to concentrate on both economic and social
aspect. It needs to be fair with producers, shareholders, customers etc. It has various
responsibilities towards employees, customers, communities and at last towards
governance and it needs to serve its responsibilities at the best at all aspects.The
“Corporate Governance concept” dwells in India from the Arthshastra time instead of
CEO at that time there were kings and subjects. Today, corporate and shareholders
replace them but the principles still remain same, unchanged i.e. good governance.
20th century witnessed the glossy of Indian Economy due to liberalization,

globalization, and privatization. Indian economy for the 1st time here was together with
world economy for product, capital and lab our market and which resulted into world
of capitalization, corporate culture, business ethics which was found important for the
existence of corporation in the world market place.
9
1.8. IMPORTANT ISSUES IN CORPORATE GOVERNANCE
There are several important issues in Corporate Governance and they play a
great role, all the issues are inter related, interdependent to deal with each other. Each
issues connected with Corporate Governance have different priorities in each of the
corporate bodies. They are as followed:
1. Value based corporate culture: For any organization to run in effective way, it
needs to have certain ethics, values. Long run business needs to have based corporate
culture. Value based corporate culture is good practice for Corporate Governance. It is
a set of beliefs, ethics, principles which are inviolable. It can be a motto i.e. A short
phrase which is unique and helps in running organization, there can be vision i.e. dream
to be fulfilled, mission and purpose, objective, goal, target.
2. Holistic view: This holistic view is more or less godly, religious attitude which helps
in running organization. It is not easier to adopt it, it needs special efforts and once
adopted it leads to developing qualities of nobility, tolerance and empathy.
3. Compliance with laws: Those companies which really need progress, have high
ethical values and need to run long run business they abide and comply with laws of
Securities Exchange Board Of India (SEBI), Foreign Exchange Regulation Act,
Competition Act 2002, Cyber Laws, Banking Laws etc.
4. Disclosure, transparency, and accountability: Disclosure, transparency and

accountability are important aspect for good governance. Timely and accurate
information should be disclosed on the matters like the financial position, performance
etc. Transparency is needed in order that government has faith in corporate bodies and
consequently it has reduced corporate tax rates from 30% today as against 97% during
the late 1970s. Transparency is needed towards corporate bodies so that due to
tremendous competition in the market place the customers having choices don’t shift
to other corporate bodies.
5. Corporate Governance and Human Resource Management: For any corporate

body, the employees and staff are just like family. For a company to be perfect the role
10
of Human Resource Management becomes very vital, they both are directly linked.
Every individual should be treated with individual respect, his achievements should be
recognized. Each individual staff and employee should be given best opportunities to
prove their worth and these can be done by Human Resource Department. Thus in
Corporate Governance, Human Resource has a great role.
6. Innovation: Every Corporate body needs to take risk of innovation i.e. innovation
in products, in services and it plays a pivotal role in Corporate Governance.
7. Necessity of Judicial Reform: There is necessity of judicial reform for a good

economy and also in today’s changing time of globalization and liberalization. Our
judicial system though having performed salutary role all these years, certainly are
becoming obsolete and outdated over the years. The delay in judiciary is due to several
interests involved in it. But then with changing scenario and fast growing competition,
the judiciary needs to bring reforms accordingly. It needs to speedily resolve disputes
in cost effective manner.
8. Globalization helping Indian Companies to become global giants based on good

governance: In today’s age of competition and due to globalization our several Indian
Corporate bodies are becoming global giants which are possible only due to good
Corporate Governance.
9. Lessons from Corporate Failure: Every story has a moral to learn from, every
failure has success to learn from, in the same way, corporate body have certain policies
which if goes as a failure they need to learn from it. Failure can be both internal as well
as external whatever it may be, in good governance, corporate bodies need to learn from
their failures and need to move to the path of success.
11
1.9. INDIAN MODEL OF CORPORATE GOVERNANCE:
SEBI is playing a key role in Corporate Governance in India.
These developments in U.K. had significant influence on India. Confederation

of Indian Industries (CII) appointed a National Task Force headed by Rahul Bajaj, who
submitted a ‘Desirable Corporate Governance in India – a Code’ in April 1998
containing 17 recommendations. There after Securities and Exchange Board of India
(SEBI) appointed a Committee under the Chairmanship of Kumar Mangalam Birla.
This committee submitted its report on 7 May 1999, Containing 19 Mandatory and 6
non-mandatory recommendations. SEBI implemented the report by requiring the Stock
Exchanges to introduce a separate clause 49 in the Listing Agreements.
In April 2002 Ganguly Committee report was made for improving Corporate
Governance in Banks and Financial Institutions. The Central Government (Ministry of
Finance and Company Affairs) appointed a Committee under the Chairmanship of Mr.
Naresh Chandra on Corporate Audit and Governance. This
committee submitted its report on 23 December 2002. Finally SEBI appointed another
committee on Corporate Governance under the Chairmanship of N.R. Narayan Murthy.
The committee submitted its report to SEBI on 8 Feb. 2003. SEBI thereafter revised
clause 49 of the Listing Agreement, which has come into force with effect from 01
January 2006. Some of the recommendations of these various committees were given
legal recognition by amending the Companies Act in 1999, 2000 and twice in 2002.
With a view to gear company law for competition with business in developed countries,
the Central Government (Ministry of Company Affairs) appointed an expert committee
under the Chairmanship of Dr.Jamshed J. Irani in December 2004.
The Committee submitted its report to the Central Government on 31 May 2005.
The Central Government had announced that the company law would be extensively
revised based on Dr.Irani’s Committee Report. Corporate world is awaiting the changes
to be made in company law. Parliament on 15 May 2006 had approved the Companies
(Amendment) Bill, 2006 which envisages implementation of a comprehensive e-
governance system through the well-known MCA-21 project.
Corporate Governance has once again become the focus of media/public

attention in India following the debacles of Enron, Xerox and WorldCom abroad, and
12
Tata Finance/Ferguson, Satyam, telecom scams by few companies and black money
laundering, employed by few at home. With the opening of the markets post
liberalization in early 1990’s and as India get integrated into world economy, the Indian
companies can no longer afford to ignore better corporate practices which are essential
to enhance efficiency to survive international competition.
The question that comes to the minds of Indian investors now is, whether our
institutions and procedures are strong enough to ensure that such incidents will not
happen again, or has the Indian corporate sector matured enough to practice effective
self-regulation? These developments tempt us to re-evaluate the effectiveness of
Corporate Governance structures and systems in India. Economic liberalization and
globalization have brought about a manifold increase in the foreign direct investment
(FDI) and foreign institutional investment (FII) into India. More and more Indian
companies are getting themselves listed on stock exchanges abroad. Indian companies
are also tapping world financial markets for low cost funds with ADR/GDR issues.
Companies now have to deal with newer and more demanding Indian and global
shareholders and stakeholder groups who seek greater disclosure, more transparent
explanation for major decisions, and, above all, a better return for their stake. There is,
thus, an increased need for Indian boards to ensure that the corporations are run in the
best interests of these highly demanding international stakeholders. Initiatives by some
Indian companies and the CII have brought Corporate Governance to a regulatory form
with the introduction of Clause-49 in the Listing Agreement of companies with the
stock exchanges from January 2000. The first to comply with the requirements of
Clause-49 were the Group-A companies, which were
required to report compliance by March 31, 2001. However, the code draws heavily
from the UK’s Cadbury committee, which is based on the assumption of a dispersed
share ownership – more common in the UK – than the concentrated and family-
dominated pattern of share ownership in India. In addition in regard to Corporate
Governance the Indian corporate have also overhauled them.
13
1.10. ROLE OF LAW IN CORPORATE GOVERNANCE:

Law can only provide a minimum code of conduct for proper regulation of
human being or company. Law is made not to stop any act but to ensure that if you do
that act, you will face such consequences i.e. good for good and bad for bad. Thus, in
the same manner, role of law in Corporate Governance is to supplement and not to
supplant. It cannot be only way to govern Corporate Governance but instead it provides
a minimum code of conduct for good Corporate Governance. Law provides certain
ethics to govern one and all so as to have maximum satisfaction and minimum friction.
It plays a complementary role. Role of law in Corporate Governance is in Companies
Act which imposes certain restrictions on Directors so that there is no misrepresentation
of documents, there is no excessive of power, so that it imposes duty not to make secret
profit and make good losses due to breach of duty, negligence, etc, duty to act in the
best interest of the company etc
1.11. PERSPECTIVES OF CORPORATE GOVERNANCE:
Before dealing with ‘perspectives’ of Corporate Governance lets understand

what is meant by the term ‘perspective’. Oxford Advanced Learner Dictionary defines
the term perspective as:-
1. ‘The Art of drawing solid objects on a flat surface so as to give the right impression
of their relative height, width, depth, distance, etc.’
2. Apparent relation between different aspects of a problem.
In simple terms it means ‘the right impression’. Mainly we will deal with the
perspectives of Corporate Governance from three points of view:
1. Shareholders: as providers of a risk capital have final control on resource allocation
decisions.
2. Organization: have the main purpose is to control i.e. through skills, intelligence,
innovation, ideas, professionalism etc. Therefore, here in this perspective, resource
allocation decision should rest with them.
3. Stakeholders: here, it says that for long term business, only shareholders value
maximization should not be seen as sole goal but it should be for well being of all
14
groups with stake of long run of business and it should be goal of Corporate
Governance.
1.12. MECHANISMS AND CONTROLS OF CORPORATE
GOVERNANCE:
Corporate Governance mechanisms and controls are designed to reduce the

inefficiencies that arise from moral hazard and adverse selection. There are both
internal monitoring systems and external monitoring systems. Internal monitoring can
be done, for example, by one (or a few) large shareholder(s) in the case of privately
held companies or a firm belonging to a business group. Furthermore, the various board
mechanisms provide for internal monitoring. External monitoring of managers'
behaviour occurs when an independent third party (e.g. the external auditor) attests the
accuracy of information provided by management to investors. Stock analysts and debt
holders may also conduct such external monitoring. An ideal monitoring and control
system should regulate both motivation and ability, while providing incentive
alignment toward corporate goals and objectives. Care should be taken that incentives
are not so strong that some individuals are tempted to cross lines of ethical behavior,
for example by manipulating revenue and profit figures to drive the share price of the
company up.
1.12.1. Internal Corporate Governance controls:
1. Monitoring by the board of directors:
The board of directors, with its legal authority to hire fire and compensate
top management, safeguards invested capital. Regular board meetings allow
potential problems to be identified, discussed and avoided. Whilst non-executive
directors are thought to be more independent, they may not always result in more
effective Corporate Governance and may not increase performance. Different board
structures are optimal for different firms. Moreover, the ability of the board to
monitor the firm's executives is a function of its access to information. Executive
directors possess superior knowledge of the decision-making process and therefore
evaluate top management on the basis of the quality of its decisions that lead to
15
financial performance outcomes, ex ante. It could be argued, therefore, that

executive directors look beyond the financial criteria.
2. Internal control procedures and internal auditors:
Internal control procedures are policies implemented by an entity's board of

directors, audit committee, management, and other personnel to provide reasonable
assurance of the entity achieving its objectives related to reliable financial reporting,
operating efficiency, and compliance with laws and regulations. Internal auditors
are personnel within an organization who test the design and implementation of the
entity's internal control procedures and the reliability of its financial reporting.
3. Balance of power:
The simplest balance of power is very common; require that the President
be a different person from the Treasurer. This application of separation of power is
further developed in companies where separate divisions check and balance each
other's actions. One group may propose company-wide administrative changes,
another group review and can veto the changes, and a third group check that the
interests of people (customers, shareholders, employees) outside the three groups
are being met.
4. Remuneration:
Performance-based remuneration is designed to relate some proportion of

salary to individual performance. It may be in the form of cash or non-cash
payments such as shares and share options, superannuation or other benefits. Such
incentive schemes, however, are reactive in the sense that they provide no
mechanism for preventing mistakes or opportunistic behaviour, and can elicit
myopic behaviour.
5. Monitoring by large shareholders and/or monitoring by banks and other

large creditors:
Given their large investment in the firm, these stakeholders have the
incentives, combined with the right degree of control and power, to monitor the
management.
16
1.12.2. External Corporate Governance controls:
1. Competition
2. Debt covenants
3. Demand for and assessment of performance information (especially financial
statements)
4. Government regulations
5. Managerial labor market
6. Media pressure
7. Takeovers
8. Proxy firms
1.13. OVERVIEW OF BANK CORPORATE GOVERNANCE:
Corporate Governance for banking originations is arguably of great importance

than for other companies, given the crucial financial intermediation role of banks in an
economy. The need of safeguard depositor’s funds and their high degree of sensitivity
to potential difficulties arrived from ineffective Corporate Governance. Effective
Corporate Governance practices on both a system wide and individual bank basis are
essential to achieving and maintaining public trust and confidence and maintaining
public trust and confidence in the banking system, which are critical to proper
functioning of the banking sector and economy as a whole bank failure can pose
significant public costs and consequence due to their potential impact on deposits
insurance mechanism and the possibility of broader macroeconomic implication such
as contagion risks and impact on payment system. Indeed, banks and other financial
companies may lose large of event such as fraud.
Moreover, review and analysis of the investments activities, risk exposures and
financial statements of banks may in some cases be more complex than such reviews
of other companies for several reasons, including the unrated, borrower specific nature
of a bank’s loan portfolio, as well as valuation challenges of Corporate Governance for
banks should therefore be more ambitious than for non-financial firms.
17
1.14. CORPORATE GOVERNANCE IN BANKS:
In the content of Corporate Governance, the Indian banking sector has a special
role to play not only because of the critical nature of the business but because of the
sector that has had large public ownership which is one in the process of being divested
historically banks has been used for government policy implementation. Corporate
Governance in general is a systematic process for enhancing wealth generating capacity
meeting stakeholder and social expectation. In this content governance in banks and
financial institution has been attracting special attention in India during the past few
years for a number of reasons. Firstly, with liberalization and globalization, the Indian
economy while the global markets on the other hand the development outside the
country are also affecting the domestic markets.
It is well understood that unstable and opaque banking and financial system
can severely descript macro-economic performance of that country. It is therefore
necessary to strengthen both supervisory and regulatory framework of the banking and
financial system. Further, with increasing deregulations in spite of the fact that banking
and financial system all over the globe including India are required to meet certain
international benchmark or standard as per regulations particularly in the areas of
supervision accounting and disclosures.
18
When referring to the banking institution it should read as meaning both on a

solo and a consolidated basis a banking institutions must have a satisfactory level of
Corporate Governance related to size and its nature of business.
1.15. THE SIGNIFICANCE OF CORPORATE GOVERNANCE IN
THE BANKING SCENARIO:
The most important factor for any economy’s growth and development is
ensuring effective governance. This is because Corporate Governance promotes the
efficient use of scarce resources. It also makes these resources flow to those sectors or
entities where there are efficient production of goods and services and the return is
adequate enough to satisfy the demands of stake holders. In addition, Corporate
Governance provides a broad mechanism of choosing the best directors on board to
govern these meagre resources.
Various Corporate Governance structures for banks exist in different countries

Appreciating the diversity in structure of Corporate Governance mechanisms across the
world, the Basel Committee in 1999, recommended four important forms of oversight
that should be included in the organizational structure of any bank in order to ensure
the appropriate checks and balances. They are
(i) Oversight by the board of directors or supervisory board;

(ii) Oversight by individuals not involved in the day-to-day running of the
various business areas;
(iii) Direct line supervision of different business areas;
(iv) Independent risk management and audit functions. The committee also
emphasizes on the importance of key personnel being fit and proper for
their jobs.
The problems of poor Corporate Governance are matter of concern in most of

the developing and underdeveloped countries. The situation is same in India where
Corporate Governance can be useful in providing the appropriate structure in any
system by placing right objectives and goals in front of the organization and helping
the organization to attain these goals. It helps to provide a degree of confidence that is
necessary for the proper functioning of a market economy. Corporate Governance in
banks also boosts the confidence of investors. It reduces the risk of capital outflow from
19
an economy and at the same time, increases the flow of capital in the economy.
Subsequently, the cost of capital becomes lower for these banks. The degree of
adherence to the basic principles of governance by the banks at the corporate level
enhances the confidence of the investors of those banks as shareholders and potential
investors require access to regular and reliable information in detail for them to assess
the management. An adequate and strong disclosure therefore helps to attract capital
and maintain confidence of investors. High-quality communications reduce investors’
uncertainty about the accuracy and adequacy of information being disseminated and
thereby help the firms to raise adequate capital at a competitive cost.
Most countries have adopted financial deregulation as a means of reform of

national financial systems. Even then, banking continues to be a completely regulated
area. There is no country around the globe that has adopted a complete laissez-faire
approach. The main reason for Corporate Governance assuming augmented
significance in our country has been globalization, which has bought with it mounting
competition. Globalization has made an impact on all companies and banks, public and
private today, banks face a more competitive and highly volatile global environment
than other organizations. They are instrumental in providing finance for commercial
enterprises. They also provide basic financial services to a broad segment of the
population. Besides, some banks also make credit and liquidity available in difficult
market conditions.
The Corporate Governance of banks is different and unique from that of the
other organizations. This is because the activities of the bank are less transparent than
other organizations. Thus, it becomes difficult for shareholders and creditors to monitor
the activities of the bank. The situation becomes even more difficult when a major part
of the share capital is with government. Additionally, banks also differ from most other
companies in terms of the complexity and range of their business risks, and the
consequences if these risks are poorly managed.
The Banking Sector in India has definitely not remained unaffected to the developments
taking place worldwide. Enhancing the level of Corporate Governance structure of
Indian banks is imperative. The regulatory bodies in India are the Reserve Bank of India
and the Securities Exchange Board India. The RBI prescribes prudential principles and
norms. The RBI performs the Corporate Governance function under the Board for
20
Financial Supervision (BFS). The BFS, in turn, supervises the working of the
Department of Banking Supervision (DBS), Department of non-Banking Supervision
(DNBS) and Financial Institutions Division. The SEBI is a regulatory authority
regulating the securities market. Its authority extends up to only companies listed in the
two stock exchanges in India, namely the NSE (National Stock Exchange) and BSE
(Bombay Stock Exchange). The compliance of the Corporate Governance code is
mandatory for listed banks.
The Banking System in India is becoming more and more complex and open,
and hence, it is at this juncture, that a need for qualitative standards is felt. Qualitative
standards include standards such as internal controls, composition and role of the
Board, disclosure standards and risk management. Such disclosure standards would put
India on par with international standards. Recent developments have shown that
inadequate Corporate Governance standards in banks and financial institutions result
into economic susceptibility. Detrimental developments taking place in one bank or
financial institution can generate similar cyclical effects in other banks or financial
institutions. Inadequate Corporate Governance arrangements in banking systems
include inadequately qualified and experienced bank directors, and directors with
significant conflicts of interest; insufficient understanding of the nature of banking risks
by a bank’ s directors and senior management; inadequate representation of non-
executive and independent directors on the board; inadequate risk management
systems, internal controls and internal audit arrangements; insufficient accountability
of directors; inadequate oversight of senior managers by boards of directors, and poor
quality financial reporting to the board; insufficient rights for shareholders.
21
1.16. EVOLUTION OF CORPORATE GOVERNANCE IN THE
BANKING SECTOR IN INDIA:
There were a few regulatory guidelines related Corporate Governance of banks

before the banking reforms. Prior to this, the Indian banking industry was characterized
by the dominance of public sector banks. In contrast to this, there were very few private
banks. The reforms of 1991 saw a striking transformation in the banking sector in India.
A lot of private sector banks entered the industry and government shareholding in
public sector banks went down. Liberalization also saw the entry of foreign banks on
the Indian banking scene. The entry of foreign banks and private sector banks bought
with it growing competition. This compelled all banks to improve their governance
structure to take care of ever-increasing customer needs. Banks now had greater
freedom and were given increased autonomy and responsibility. The entry of
institutional and retail shareholders also resulted in improvement of Corporate
Governance standards.
The East-Asian crisis was instrumental in giving a new shape to Corporate

Governance. Since then, many institutions have taken the initiative to contribute to the
development of Corporate Governance. The OECD formed its Corporate Governance
principles in 1999. They were again revised in 2004. The Basel Committee on Banking
Supervision published guidelines on Corporate Governance in banks in 1999.These
norms are followed by banks all over. The most recent of these are known as the Basel
III norms. A series of scandals in the United States led to reforms in Corporate
Governance and disclosures in that country. In July 2002, the Sarbanes Oxley Bill (also
known as SOX) was enacted. The Act contained changes in several areas of Corporate
Governance like financial disclosures and auditor responsibility.
In India, the first announcement in regard to Corporate Governance was made

by Dr.BimalJalan, Governor of the Reserve Bank of India in 2001. An advisory group
on Corporate Governance was formed under the chairmanship of Dr. R.H. Patil. It
submitted its report in March 2001. This group looked into issues relating to Corporate
Governance in banks in India. It then made recommendations to bring the governance
standards in India on par with the best international standards. A Consultative Group
was then constituted in November 2001 under the chairmanship of Dr. A.S. Ganguly.
This group was formed to strengthen the internal supervisory role of the Boards. The
22
report of the Ganguly Group was sent to all the banks and also 80 the Government for
consideration in June 2002. Subsequently, the advisory group on Banking Supervision
under the chairmanship, Shri M.S. Verma also submitted its report in January 2003.
The Reserve Bank then took measures to strengthen the Corporate Governance in the
Indian banking sector and to try to bring it at par with international standards. On 21
August 2002, the Department of Company Affairs (Ministry of Finance and Company
Affairs) instituted a committee to look into various Corporate Governance issues in the
country.
1.17. NEED FOR CORPORATE GOVERNANCE IN BANKS:
1. Banks in India are facing increasing competition, within and outside India;
both in terms of markets for its products and for sources offend. It has, therefore become
necessary for banks to contender engineer, to provide the products and services to suit
the ever-changing requirements,
2. To accelerate the speed with which the transactions are completed and to
constantly evaluate and provide training to the workforce update the knowledge and
impress upon them the necessity to have professional and competitive approach
3. Investors believe that a bank with good governance will provide them safe
place for investment and also give better returns. Good Corporate Governance is,
therefore, an important factor in competitive environment.
4. To attract and retain the commitment of investors, customers, employees,

Banks should ensure that they match the global benchmarks in Corporate Governance
practice.
23
1.18. CORPORATE GOVERNANCE IN PRIVATE SECTOR
BANKS:
Private sector banks have entered niche areas, listed their scrip and being market
driven they have been more transparent in their functioning. They have also been more
tech saw1y; growth oriented and has less of NPAs. Private sector banks have to
conform to standard of good banking practices such as:
1. Ensuring a fair and transparent relationship between the customer and bank.
2. Instituting comprehensive risk management system and its adequate
Disclosure.
3. Proactively handling the customer complaints and evolving scheme of
redressal for grievance.
4. Building systems and processes to ensure compliance with the statutes
concerning banking.
1.19. CORPORATE GOVERNANCE IN PUBLIC SECTOR BANKS:
The issue of Corporate Governance in PSBs is important and also complex.

From the banking industry perspective, the attributes of Corporate Governance provide
guidelines to the directors and the top level managers to govern the business of banks.
These guidelines relate to how banks establish corporate aims, carry out their daily
activities, and take into account the interest of stakeholders and making sure that the
corporate activities are in tune with the public expectations that banks will function in
an ethical and legal manner thereby protecting the interest of its depositors Basel
committee, (1999). As these broad issues relating to governance apply to other
companies also but they assume more significance for banks because they deal with
public deposits directly. Banks’ philosophy for Corporate Governance should lay
emphasis on the cardinal values of 'fairness', 'transparency.' and’ accountability', as
enunciated by World Bank, for performance at all levels, thereby, enhancing the
shareholders' value and protecting the interest of the stakeholders.
The Banks consider themselves as trustee of its shareholders and should

acknowledge its responsibility towards them for creation and safeguarding
shareholders’ wealth. Banks should continue its pursuit of achieving these objectives
through the adoption and monitoring of corporate strategies, prudent business plans,
24
monitoring of major risks of the banks business and pursuing the policies and procedure
to satisfy its legal and ethical responsibilities. Hence, banks should aim at enhancing
the long term shareholder value while protecting the 'interest of shareholders, customers
and other in line with international best practice.
1.20. PUNJAB NATIONAL BANK (PNB):
Punjab National Bank (PNB) is an Indian multinational banking and financial

services company. It is a corporation based in New Delhi, India. The bank was founded
in 1894. As of 31 March 2017, the bank has over 80 million customers, 6,937 branches
(7,000 as on 2nd Oct, 2018) and 10681 ATMs across 764 cities.
PNB has a banking subsidiary in the UK (PNB International Bank, with seven branches
in the UK), as well as branches in Kong, Kowloon, Dubai, and Kabul. It has
representative offices in Almaty (Kazakhstan), Dubai (United Arab
Emirates), Shanghai (China), Oslo (Norway), and Sydney (Australia). In Bhutan it
owns 51% of Druk PNB Bank, which has five branches. In Nepal PNB owns 20% of
Everest, which has 50 branches. Lastly, PNB owns 84% of JSC (SB) PNB Bank in
Kazakhstan, which has four branches.
1.20.1. History of PNB:
Punjab National Bank is a PSU working under Central Government of India

regulated by RBI Act, 1934 and Banking Regulation Act, 1949. Punjab National Bank
was registered on 19 May 1894 under the Indian Companies Act, with its office
in Bazaar, Lahore, in present-day Pakistan. The founding board was drawn from
different parts of India professing different faiths and of varying back-ground with, the
25
common objective of creating a truly national bank that would further the economic
interest of the country. PNB's founders included several leaders of
the Swadeshi movement such as Dyal Singh Majithia and LalaHarkishen Lal,
LalaLalchand, Kali Prosanna Roy, E. C. Jessawala, PrabhuDayal, BakshiJaishi Ram,
and LalaDholanDass. LalaLajpat Rai was actively associated with the management of
the Bank in its early years. The board first met on 23 May 1894. The bank opened for
business on 12 April 1895 in Lahore.
PNB has the distinction of being the first Indian bank to have been started solely
with Indian capital that has survived to the present. (The first entirely Indian
bank, Oudh Commercial Bank, was established in 1881 in Faizabad, but failed in 1958.)
PNB has had the privilege of maintaining accounts of national leaders such as Mahatma
Gandhi, Jawahar Lal Nehru, Lal Bahadur Shastri, Indira Gandhi, as well as the account
of the famous Jalianwala Baugh Committee.
1.20.2. Corporate Governance in PNB:
Corporate Governance Practices in Punjab National Bank The main objective

of the bank is to continue to remain dynamic to the ever changing needs of the
customers. The bank philosophy is that proper Corporate Governance facilitates
effective management and control of business and ethics and to optimize the value for
all its stakeholders. The principles of Corporate Governance basically require the
commitment of the Bank to attain high standard of transparency, accountability,
responsibility and financial stability with the ultimate objective of building up values
to the stakeholders. The objectives are: enhancing the shareholders’ value within the
26
principles of ethics and legal framework of the country; to protect interest of

shareholders and other stakeholders including customers, employees and society at
large; and to ensure transparency and integration in communication and to make
available full, accurate and clear information to all concerned.
Model Code of Conduct for All Board Members and Senior Management
Personnel In Terms Of the Regulation 17(5) Of the SEBI (Listing Obligations and
Disclosure Requirement) Regulations 2015
1.20.3. Need and Objective of the Code:
In terms of Regulation 17(5) of the SEBI (Listing Obligations and Disclosure

Requirement) Regulation 2015 and Listing Agreement entered into with the Stock
exchanges, as a part of Corporate Governance the listed entities are required to lay down
a Code of Conduct for Directors on the Board of an entity and its Senior Management.
Senior Management has been defined to include personnel who are members of its Core
Management and functional heads excluding the Board of Directors.
Accordingly, the Bank has laid down this Code for its Directors on the Board
and its Core Management (individual bank will decide on the composition of Core
Management).
1.20.4. Bank's Belief System:
This Code of Conduct attempts to set forth the guiding principles on which the
Bank shall operate and conduct its daily business with its multitudinous stakeholders,
government and regulatory agencies, media and anyone else with whom it is connected.
It recognizes that the Bank is a trustee and custodian of public money and in order to
fulfil its fiduciary obligations and responsibilities, it has to maintain and continue to
enjoy the trust and confidence of public at large.
The Bank acknowledges the need to uphold the integrity of every transaction it
enters into and believes that honesty and integrity in its internal conduct would be
judged by its external behaviour. The Bank shall be committed in all its actions to the
interest of the countries in which it operates. The Bank is conscious of the reputation it
carries amongst its customers and public at large and small Endeavour to do all it can
to sustain and improve upon the same in its discharge of obligations. The Bank shall
27
continue to initiate policies, which are customer centric and which promote financial
prudence.
1.20.5. Philosophy of The Code:
The Code envisages and expects –
1. Adherence to the highest standards of honest and ethical conduct, including

proper and ethical procedures in dealing with actual or apparent conflicts of
interest between personal and professional relationships.
2. Full, fair, accurate, sensible, timely and meaningful disclosures in the periodic
reports required to be filed by the Bank with government and regulatory
agencies.
3. Compliance with applicable laws, rules and regulations.
4. To address misuse or misapplication of the Bank's assets and resources.
5. The highest level of confidentiality and fair dealing within and outside the Bank.
1.20.6. General Standards Of Conduct:
The Bank expects all Directors and members of the Core Management to
exercise good judgment, to ensure the interests, safety and welfare of customers,
employees and other stakeholders and to maintain a cooperative, efficient, positive,
harmonious and productive work environment and business organization. The Directors
and members of the Core Management while discharging duties of their office must act
honestly and with due diligence. They are expected to act with that amount of utmost
care and prudence, which an ordinary person is expected to take in his/her own
business. These standards need to be applied while working in the premises of the Bank,
at offsite locations where the business is being conducted whether in India or abroad,
at Bank-sponsored business and social events, or at any other place where they act as
representatives of the Bank.
28
1.21. CONFLICT OF INTEREST;
A "conflict of interest" occurs when personal interest of any member of the

Board of Directors and of the Core Management interferes or appears to interfere in
any way with the interests of the Bank. Every member of the Board of Directors and
Core Management has a responsibility to the Bank, its stakeholders and to each other.
Although this duty does not prevent them from engaging in personal transactions and
investments, it does demand that they avoid situations where a conflict of interest might
occur or appear to occur. They are expected to perform their duties in a way that they
do not conflict with the Bank's interest such as –
1.21.1. Employment/Outside Employment:
The members of the Core Management are expected to devote their total
attention to the business interests of the Bank. They are prohibited from engaging in
any activity that interferes with their performance or responsibilities to the Bank or
otherwise is in conflict with or prejudicial to the Bank.
1.21.2. Business Interests:
If any member of the Board of Directors and Core Management considers

investing in securities issued by the Bank's customer, supplier or competitor, they
should ensure that these investments do not compromise their responsibilities to the
Bank. Many factors including the size and nature of the investment; their ability to
influence the Bank's decisions; their access to confidential information of the Bank or
of the other entity and the nature of the relationship between the Bank and the customer,
supplier or competitor should be considered in determining whether a conflict exists.
Additionally, they should disclose to the Bank any interest that they have which may
conflict with the business of the Bank.
1.21.3. Applicable Laws:
The Directors of the Bank and Core Management must comply with applicable
laws, regulations, rules and regulatory orders. They should report any inadvertent non-
compliance, if detected subsequently, to the concerned authorities.
29
1.21.4. Disclosure Standards:
The Bank shall make full, fair, accurate, timely and meaningful disclosures in
the periodic reports required to be filed with Government and Regulatory agencies. The
members of Core Management of the Bank shall initiate all actions deemed necessary
for proper dissemination of relevant information to the Board of Directors, Auditors
and other Statutory Agencies, as may be required by applicable laws, rules and
regulations.
1.21.5. Use Of Bank's Assets And Resources:
Each member of the Board of Directors and the Core Management has a duty
to the Bank to advance its legitimate interests while dealing with the Bank's assets and
resources. Members of the Board of Directors and Core Management are prohibited
from:
1. Using corporate property, information or position for personal gain;

2. Soliciting, demanding, accepting or agreeing to accept anything of value from
any person while dealing with the Bank's assets and resources;
3. Acting on behalf of the Bank in any transaction in which they or any of their
relative(s) have a significant direct or indirect interest.
1.22. CONFIDENTIALITY AND FAIR DEALINGS:
1.22.1. Bank's Confidential Information:
The Bank's confidential information is a valuable asset. It includes all trade

related information, trade secrets, confidential and privileged information, customer
information, employee related information, strategies, administration, research in
connection with the Bank and commercial, legal, scientific, technical data that are either
provided to or made available to each member of the Board of Directors and the Core
Management by the Bank either in paper form or electronic media to facilitate their
work or that they are able to know or obtain access by virtue of their position with the
Bank. All confidential information must be used for Bank's business purposes only.
This responsibility includes the safeguarding, securing and proper disposal of

confidential information in accordance with the Bank's policy on maintaining and
30
managing records. This obligation extends to confidential information of third parties,

which the Bank has rightfully received under non-disclosure agreements.
To further the Bank's business, confidential information may have to be

disclosed to potential business partners. Such disclosure should be made after
considering its potential benefits and risks. Care should be taken to divulge the most
sensitive information, only after the said potential business partner has signed a
confidentiality agreement with the Bank.
Any publication or publicly made statement that might be perceived or

construed as attributable to the Bank, made outside the scope of any appropriate
authority in the Bank, should include a disclaimer that the publication or statement
represents the views of the specific author and not the bank.
1.22.2. Other Confidential Information:
The Bank has many kinds of business relationships with many companies and
individuals. Sometimes, they will volunteer confidential information about their
products or business plans to induce the Bank to enter into a business relationship. At
other times, the Bank may request that a third party provide confidential information to
permit the Bank to evaluate a potential business relationship with that party. Therefore,
special care must be taken by the Board of Directors and members of the Core
Management to handle the confidential information of others responsibly. Such
confidential information should be handled in accordance with the agreements with
such third parties.
1. The Bank requires that every Director and the member of Core Management
i.e., General Managers should be fully compliant with the laws, statues, rules
and regulations that have the objective of preventing unlawful gains of any
nature whatsoever.
2. Directors and the members of Core Management shall not accept any offer,
payment promise to pay or authorization to pay any money, gift or anything of
value from customers, suppliers, shareholders/ stakeholders, etc. that is
perceived as intended, directly or indirectly, to influence any business decision,
any act or failure to act, any commission of fraud or opportunity for the
commission of any fraud.
31
1.23 PUNJAB NATIONAL BANK SCAM:
The recent Punjab National Bank (PNB) scam grabbed headlines across all news
media for the sheer size (Rs 12,000 crores) of the scam and the ease with which it was
conducted. In fact this scam has not been the result of an isolated incident, but arose
from sustained acts of omission or commission. While the investigation by the CBI
progresses in earnest, some of the lower level facilitators have been caught for the
procedural lapses. Although we are yet to know the entire actors in this episode, as
usual the focus of the media has been on getting hold of the fraudsters. We also do not
know how such a massive scam remained undetected, despite Suspicious Transaction
Reports (STRs) being raised on these transactions. Certainly, some questions have been
asked about the role of the auditors and the failure of operational risk management.
Auditors pointed at the bank’s unwillingness to dig deeper despite their reminders about
similar kinds of frauds a decade ago.
2.23.1 UNDERSTANDING THE SCAM:
To recollect, the PNB declared in February that they had unearthed a fraud
within their system, wherein the fraudsters were issued Letters of understanding (LOU).
LOU essentially is a bank guarantee against which another lender gives a foreign
currency loan issued by PNB without collateral. Therefore the fraudsters used the PNB
guarantee to acquire goods at the expense of PNB, without the requirement of any
collateral, and run their business unhindered. When the time for repayment of the
previous LOU became due, they would resort to the same strategy and repay that
amount. So the bank was caught in a vicious cycle of allowing its funds to be used to
run the business of the fraudsters. This raises the question of how could this not have
been detected by the auditors. But as the previous auditors said, they had detected and
reported similar incidents in 2006 and no action was taken. Indeed, after the recent
scams it has been reported that the government is planning to introduce governance to
improve the quality of its credit appraisal systems. But it is important to understand the
possible Corporate Governance lacunae that may have helped perpetrate the present
scam. In fact, this is the aspect that has attracted the least media attention.
32
2.23.2 CORPORATE GOVERNANCE ISSUES IN SCAM:
As is commonly known, Corporate Governance is the system by which

companies are directed and controlled. So it is not about the day-to-day operational
management of the company, but what the board of a company does and how the values
of the company are set by the Board. This means having the best persons in the Board.
There are three issues to be considered in the case of Corporate Governance in public
sector banks.
First, being a listed entity PNB would have to adhere to Clause 49 (2014) of the
Securities and Exchange Board of India (SEBI) listing agreement. In fact, it is precisely
this capability that is enshrined in clause 49 too. As a responsibility of the Board: ‘Board
should provide the strategic guidance to the company, ensure effective monitoring of
the management and should be accountable to the company and the shareholders’.
More importantly, the Board is also tasked with ensuring the integrity of the
company’s accounting and financial reporting systems, including independent audit
and putting in place appropriate systems of control – for risk management, financial
and operational control, and compliance with the law and relevant standards.
Second, coming to the rules for composing a Board: Firstly, board

shall have an optimum combination of executive and Non-executive Directors (NED),
with not less than 50 percent of the board of directors comprising of non-executive
directors. Secondly, where the Chairman of the Board is a non-executive director, at
least 1/3rd of the Board should comprise independent directors and in case the company
does not have a regular non-executive Chairman, at least half of the Board should
comprise independent directors, and thirdly, independent director means NED,
but excludes nominee director.
Finally, the regulation requires a qualified and independent audit committee.

The audit committee shall have minimum of three directors as members and 2/3rd of
the committee members shall be independent directors. Also, all members of audit
committee shall be financially literate (means the ability to read and understand basic
financial statements i.e. balance sheet, profit and loss account, and statement of cash
flows) and at least one member shall have accounting or related financial management
expertise.
33
Chapter No. 2:
Research Methodology
34
Corporate Governance in banking sector means it is a systematic process for

enhancing wealth generating capacity meeting stakeholder and social expectation.
Corporate Governance is a system by which companies are directed and controlled. It
is that structure where objectives of the organization are set, and the means of
monitoring those objectives are determined. In this research I have taken one bank i.e.
Punjab National Bank (PNB) and have studied the level of corporate governance in that
bank. The corporate governance practices of Punjab National Bank is evaluated on the
basis of elements like shareholding pattern, board practices, board committees and
disclosures and transparency of information.
2.1 OBJECTIVES OF THE STUDY:
 To know the concept of corporate governance in banking sector.

 To find out the failure of corporate governance in PNB scam of Punjab National
Bank.
 To study accounting and auditing practices, institutional mechanism and
corporate culture of Punjab National Bank (PNB).
 To evaluate corporate governance disclosure practices in Punjab National Bank
(PNB).
 To examine the compliance of the bank with respect to mandatory and non-
mandatory requirements of corporate governance practices under Clause 49 of
Listing agreement of SEBI.
 To examine the board composition, participation of executive and non-
executive directors in various committees of the bank such as audit committee,
remuneration committee, and investors’ grievance committee.
 To derive the conclusion for better corporate governance of PNB.
35
2.2 SCOPE OF THE STUDY:
 The scope of this study is wide concept. This study is done to know whether the
corporate governance practices are followed in the bank. Also to study how it
will effect on growth and development of the bank.
 The study is based on secondary data for the purpose of assessing the level of
corporate governance. The period considered for the study is 2012-13 and 2017-
18.
 The fundamental reason behind selecting 2012-13 and 2017-18 is that we can
analyze the change in the corporate governance practices of the bank in last 5
years.
 Considering this, 2012-13 and 2017-18 the annual report of the bank would
provide some useful insight about the present state of corporate governance
practices and disclosure norms to evaluate the structure and procedure of
corporate governance adopted by the bank commitment to adhere it in their
annual report.
 As a result, study has been conducted based on statutory and non-mandatory
requirements stipulated by the original and revised clause 49 of the listing
agreement and provisions required by the Banking Act.
2.3 HYPOTHESIS OF THE STUDY:
H0 Punjab National Bank is now serious about their Corporate Governance.
H1 Punjab National Bank has not learnt any lesson from the effect of poor
Corporate Governance.
2.4 LIMITATION OF THE STUDY:
This study is only limited only to the annual reports 2012-13 and 2017-18 of
PNB.
36
2.5 SIGNIFICANCE OF THE STUDY:
1. Corporate governance is important so that the organization will be efficiently

and effectively managed and controlled.
2. Good Corporate governance helps the organization for its growth and
development in future and on other side bad corporate governance damages the
organization.
3. In this study I had found that whether corporate governance is being followed
in PNB. And if not what measures it should take so that it will be developed
again.
2.6 SELECTION OF PROBLEM:
I want to know that whether the corporate governance practices are followed in
Punjab National bank. Whether proper accountability, disclosures and interest of
stakeholders are maintained. Also to find out the failure of the corporate governance in
PNB scam and to what measures bank will take to tighten the corporate governance
practices of the bank.
2.7 SAMPLE SIZE:
There are many banks they are commercial banks, public sector banks,
corporate banks, foreign banks, etc. for this study I have selected Punjab National Bank,
to check whether corporate governance policies are followed in PNB.
2.8 DATA COLLECTION:
The work proceeded on the basis of secondary data. Secondary data and
information were culled from annual reports which I have collected from the official
website of PNB. The data and information used from annual reports of the FY 2012-13
and FY 2017-18. This annual reports are easily available on the website of bank.
37
Chapter No. 3:
Review of literature
38
3.1 WHAT IS REVIEW OF LITERATURE?
The aim of a literature review is to show particular reader that researcher have
read, and have a good grasp of, the main published work concerning a particular topic
or question in specific field. This work may be in any format, including online sources.
It may be a separate assignment, or one of the introductory sections of a report,
dissertation or thesis. In the latter cases in particular, the review will be guided by
research objective or by the issue or thesis researcher are arguing and will provide the
framework for researchers’ further work.
It is very important to note that review should not be simply a description of

what others have published in the form of a set of summaries, but should take the form
of a critical discussion, showing insight and an awareness of differing arguments,
theories and approaches. It should be a synthesis and analysis of the relevant published
work, linked at all times to your own purpose and rationale.
3.2 DEFINITION OF LITERATURE REVIEW:
A Literature Review is "a systematic, explicit, and reproducible method for

identifying, evaluating, and synthesizing the existing body of completed and recorded
work produced by researchers, scholars, and practitioners."
3.3 WRITING OF LITERATURE REVIEW:
Researcher first need to decide what he/she need to read. In many cases
researcher will be given a booklist or directed towards areas of useful published work.
Make sure to use this help. With dissertations, and particularly thesis, it will be more
down to researcher to decide. It is important, therefore, to try and decide on the
parameters of research.
What exactly are objectives and what does researcher need to find out? In
literature review, is researcher looking at issues of theory, methodology, policy,
quantities research, or what? Before researcher start reading it may be useful to compile
a list of the main areas and questions involved, and then read with the purpose of finding
out about or answering these.
Unless something comes up which is particularly important, stick to this list, as

it is very easy to get side-tracked, particularly on the internet. A good literature review
39
needs a clear line of argument. Therefore, need to use the critical notes and comments
researcher made while doing reading, to express an academic opinion. Make sure that:
Researcher includes a clear, short introduction which gives an outline of the.
1. Review, including the main topics covered and the order of the arguments, with
a brief rationale for this. There is always a clear link between researcher own
arguments and the evidence.
2. Uncovered in reading. Include a short summary at the end of each section. Use
quotations if appropriate.
3. Researcher always acknowledges opinions which do not agree with thesis. If
researcher ignore opposing viewpoints, argument will in fact be weaker.
Literature review must be written in a formal, academic style. Keep writing

clear and concise, avoiding colloquialisms and personal language. Researcher should
always aim to be objective and respectful of others' opinions; this is not the place for
emotive language or strong personal opinions. If one thought something was rubbish,
use words such as "inconsistent", "lacking in certain areas" or "based on false
assumptions". When introducing someone's opinion, don't use "says", but instead an
appropriate verb which more accurately reflects this viewpoint, such as "argues",
"claims" or "states". Use the present tense for general opinions and theories, or the past
when referring to specific research or experiments.
3.4 IMPORTANCE OF LITERATURE REVIEW:
 To define and limit of the research

 To place your study in an historical perspective
 To avoid unnecessary duplication
 To evaluate promising research methods
 To relate your findings to previous knowledge and suggest further research.
A good literature review, therefore, is critical of what has been written,

identifies areas of controversy, raises questions and identifies areas which need further
research.
40
3.5 TYPES OF SOURCES FOR REVIEW:

1. Primary review: Usually a report by the original researchers of a study
(unfiltered sources). Letters/correspondence, diaries, memoirs,
autobiographies, official or research reports, patents and designs, and empirical
research articles.
2. Secondary review: Description or summary by somebody other than the original
researcher, e.g. a review article (filtered sources) academic journal articles
(other than empirical research articles or reports), conference proceedings,
books (monographs or chapters’ books), documentaries.
3. Conceptual/theoretical review: Papers concerned with description or analysis of
theories or concepts associated with the topicoks (monographs or chapters’
books), documentaries.
In this chapter, I have collected various articles from various newspapers,

books, journals, etc. many studies have been conducted by researcher at Corporate
Governance in banks. The researcher has attempted to present a brief review of the
available literature, which is published as research articles and technical papers
published in newspapers, magazines and website in the related area.
PTI (2018)1,interpreted that PNB is taking all required steps to check any kind of gaps,
loopholes and deviation in the system and procedure. According to the author the bank
has strong foundations and is committed to implement ethical standards besides
tightening the norms where ever required despite demonstration carried out by officer’s
association unions at some center. Thus PNB has tightened the Corporate Governance
norms. Further the author said that this move has been appreciated by the shareholders
of the bank. According to the author the Punjab National bank should tighten their
norms so that no such scam will happen again.
Chandrajit Banerjee (2018)2,analysed that The PNB incident, which apparently has
been underway for some years, exposes the vulnerabilities of banks with respect to
supervision and monitoring. The letters of undertaking (LoUs) issued by PNB without
proper backing have impacted other banks, implying systemic risk to the entire banking
sector. In turn, lending may be curtailed and normal trade credit might suffer as banks
take remedial action. According to author Banks, especially PSBs, require a systemic
overhaul related to ownership, management, and regulation.
41
PSBs account for about 70 per cent of the banking assets and almost three-
quarters of deposits of all scheduled commercial banks. As such, they are prone to
higher malfeasance risks. Further the author said that non-performing assets (NPAs)
have deteriorated in recent years, with gross NPAs as a proportion of total assets rising
from 4.6 per cent in March 2015 to 9.6 per cent in March 2017. This is set to grow
further as per the Reserve Bank of India’s new resolution framework. Given that high
NPAs restrict bank lending capacity, the government has sought to infuse capital into
stressed PSBs.
Dr. Ajay Kumar (2018)3, explained that the recent Punjab National Bank (PNB) scam
grabbed headlines across all news media for the sheer size (Rs 12,000 crores) of the
scam and the ease with which it was conducted. According to the author while the
investigation by the CBI progresses in earnest, some of the lower level facilitators have
been caught for the procedural lapses. Although we are yet to know the entire actors in
this episode, as usual the focus of the media has been on getting hold of the fraudsters.
We also do not know how such a massive scam remained undetected, despite
Suspicious Transaction Reports (STRs) being raised on these transactions. Auditors
pointed at the bank’s unwillingness to dig deeper despite their reminders about similar
kinds of frauds a decade ago.
Aggarwal et al. (2017)4, asserts that good governance helps firms to have favorable
access to capital markets although this benefit holds little value to firms in under-
developed capital markets or for firms with limited growth opportunities. Better
governance restricts controlling shareholders‟ expropriation of minority and this loss
of private benefits is even more in countries with low investor protection. Hence,
countries that have weak protection for investors are expected to have worse Corporate
Governance and hence enhanced firm level governance can lead to a marked
improvement in firm value.
42
Desai Sanjay, Bhanumurthi (2017)5, observed through their studied that the
Corporate Governance and disclosure practices followed by 30 SENSEX companies by
examine the annual reports for financial year 2009. The major focus of this study was
on compositions of BOD, audit committee and shareholder’s grievance committee. It
was observed that the Corporate Governance and disclosure practices followed by
SENSEX companies are very good with exception just one or two items.According to
the author major focus of the Corporate Governance followed by various banks should
be on compositions of BOD, audit committee and shareholder’s grievance committee.
Jayati Sarkar, Subrata Sarkar (2016)6, analysed the role of Corporate Governance
mechanisms in determining bank outcomes that has been studied mostly in the context
of developed economics and focused mainly on private banks. According to author
there is a strong ownership effect with board independence having a significant effect
on performance of private sector banks and negative impacting the performance of
private sector banks? According to author the mechanism of Corporate Governance
should be followed properly so that the Corporate Governance policies will be followed
in the organization and the business will be carried out fairly and transparency will be
maintained.
A.P. Pati (2016)7, explained that policy framework for Corporate Governance has been
developed lately in India and for banking it is still involving. According to author for
Indian banking the RBI has taken sale responsibility of framing policy in this regards.
Author explained that the framework of the Corporate Governance in growing in India
day by day. According to author the Corporate Governance is very important in the
organization and must be followed in India for the growth and the development of the
business.
N. Balasubramanian, Rejie George (2015)8, set out some of the key internal
mechanism of Corporate Governance, there institutional context and how corporate
boards as a permanent mechanism of such governance are structured and how they
perform their assigned role.According to author the mechanism of Corporate
Governance should be followed properly so that the Corporate Governance policies will
be followed in the organization and the business will be carried out fairly and
transparency will be maintained.
43
SonaraRonak (2015)9, interpreted that banking industry has gone through tremendous
changes. According to author ICICI Bank is leading private sector bank in India. ICICI
is one of the private sector banks of India which practices good Corporate Governance.
Further author stated that he believed good Corporate Governance practices lead to
efficient running of the bank and optimizing value for all its stakeholder.
PTI (2015)10, stated that the RBI refused to comment on the Corporate Governance
issues plugging ICICI Bank whose MD and CEO ChandaKochhar was asked to proceed
on leave till an external enquiry into her alleged mollified actions favouring Videocon
group and companies of her husband Deepak Kochhar was completed. According to
author the bank’s lending norms extended Rs. 3250cr. Loan to Videocon group in 2010
which has now become a dud asset.
Madhani P.M. (2014)11, analysed that cross listed banks disclose more information
than those with listing only in home country. The research provides insights regarding
the question of low a countries legal environment may influence the effectiveness of
banks level Corporate Governance mechanism and examines how cross listed banks are
affected by the legal environment of last country where it is listed.According to author
the Corporate Governance is very important in the organization and must be followed
in India for the growth and the development of the business.
Chilumuri, Srinivasa Rao (2013)12, studied that the Corporate Governance practices
in State Bank Of India should improve for best investment policies, appropriate internal
control system, better credit risk management, better customer service and adequate
automation in order to achieve excellence transparency and maximization of
stakeholders value and wealth. According to author the Corporate Governance is very
important in the organization and must be followed in India for the growth and the
development of the business.
TyagiEt’al (2013)13, conducted a case study on four banks two were public sector i.e.
SBI and BOI and two where private sector banks i.e. HDFC Banks and ICICI Bank.
According to authors result suggested that Corporate Governance practices of private
sector banks were more satisfactory than public sector banks in India. Corporate
Governance will help the banks and the organization for the growth and development
of the organization. It creates the transparency and the openness to the business carried
out by the bank. And thus protect the interest of the shareholders.
44
Motwani, S.S, Pandya H.B. (2013)14, studied that sectorial analysis of Corporate
Governance practices in India, is an attempt to reveal secrets of Corporate Governance
in India context. According to authors the aim of their study Corporate Governance
practices in India context for selected sector over the period of five years for purpose
to calculate average score by dividing the sum of scores of the companies for the year.
BrahmbattEt’al (2012)15, investigated that the Corporate Governance of private and

public banks were examined and compared. The author studied the importance of
governance parameters from investors and financial advisor perspective. The result
showed the difference in the adherence of norms by different banks in last 3 years of
operation and reporting. According to author major mandatory clause are met with but
non mandatory parameters are not integrated in corporate system.
Humayan K.M, Adelopo I. (2012)16, stated that paper enlightens an account to

Corporate Governance disclosure practices by public enterprises in Swaziland. Two
basis objective of that study are to assess that general level of development African
country Swaziland. Secondly to investigate the disclosure requirement in UN.
Kaur H. (2012)17, attempted to find out the difference in disclosure policies of private
sector bank via those of public sector banks in India. Author took sample size of five
banks in each categories and concludes on the basis of various disclosure parameters
that there is no statically significant difference in Corporate Governance disclosure
policies of two sectors in banking industry in India.
PTI (2011)18, described that the report of Basel committee and how it helps in the
Corporate Governanceib banks. Also writer explained that the best Corporate
Governance practices for banks are concerned, they may include realization that the
times are changing establishing on effective capable and reliable board of directors
establishing a corporate code of ethics by banks for themselves having an effective and
operating audit committee.
Kajal Chaudhary, Monika Sharma (2011)19, stated that increased competition, new
information technology and thereby declining processing costs, the corrosion of
product and geographic boundaries are less restrictive governmental regulations have
all played a major role for public sector banks in India to forcefully compete with the
private and foreign banks.
45
Norwani (2011)20, evaluated the Corporate Governance failure and its impact on
financial reporting within selected companies, few case has been explored in their
papers that influence of Corporate Governance in financial reporting. Author suggested
that the enforcement and monitoring should be practiced ethically to enhance the
existing rules and regulations.
Bhasin Madan Lal (2010)21, analyzedCorporate Governance disclosure practices in

India by using the annual report of reliance industry limited in order to ascertain how
for this company is compliant of CG standards, a“point value system” has been applied
which show very good performance with an overall score of 85 points and conclude
that RIL group following best CG practices in India.
SakthivelMurugan M. (2010)22, explores the nature of Corporate Governance in

public sector banks, private sector banks and financial institutes and also identifies the
impact of Corporate Governance on various elements of financial performance like
capital adequacy, liquidity, assets, investments. According to authors study proves that
Corporate Governance has tremendous impact on managing the earning qualities of
banks through credit operations and deposit mobilization.
Sinha Ram Pratap (2008)23, 40 Indian commercial banks both public and private using
Radio DEA model for period 2000-2001 to 2005-2006 comparing two variable total
assets and off balance sheet exposures in order the results were in period 2000-2001
public banks outperformed the private once, while in period 2005-2006 private banks
outperformed public ones.This puts RBI in the role of the majority stakeholder as well
as the role of the regulator thus making it more liable to form policies that would help
the banks in which it holds the stake. Inspite of such tight Government regulation the
main disadvantage was that it did not use any qualitative factors.
Andres and Vallelado (2008)24, have examined the corporate governance in banking:
the role of the board of directors. They pointed out that bank board composition and
size are related to directors‟ ability to monitor and advice management and that larger
and not excessively independent board might prove more efficient in monitoring and
advising functions, and create more value. Boards of directors are responsible for
overseeing management activities and protecting stockholders' interests.
46
Hossain Mohammed (2007)25, reveled the level and extent of the Corporate
Governance disclosure of the banking sector in India. After collecting the annual report
of 38 Indian banks for year 2002-03. The author adopted a regression model to
investigate the relationship between Corporate Governance disclosure and various
Corporate Governance attributed such as size, profitability, ownership, listing, etc.
Banerjee (2005)26, highlighted the issue that the various Government policies that can
mitigate informational asymmetry and transaction costs of banks can improve banks’
governance. For the purpose of his study he took 27 Indian Public Sector Banks and
various issues relating to Corporate Governance in public sector banks. Out of these,
one being the ownership structure in the Public sector banks, and other relating to non-
performing assets/loans that has become a major cause of concern to policy makers in
banks has been reflected upon in the paper. In India, Government is the owner, manager,
semi-regulator or even at times a super regulator of public sector banks. Rights of the
private shareholders are considerably curtailed; composition of the board also does not
follow Corporate Governance framework, and no significant concentrated ownership
to counter the government. This puts RBI in the role of the majority stakeholder as well
as the role of the regulator thus making it more liable to form policies that would help
the banks in which it holds the stake. Inspite of such tight Government regulation, banks
are able to efficiently manage the risk in the form of NPAs. Net NPAs as a percentage
of Net Advances for all public sector banks has come down over the years. Even NPAs
from priority sector lending has fallen.
T.G.Arun, J.D. Turner (2004)27, The author discuss the Corporate Governance of
banking institution in developing economies based on a theoretical discussion of the
Corporate Governance of banks, authors suggested that bank reforms can only be fully
implemented once a prudential regulatory system is in place. According to author the
Corporate Governance reforms may be a prerequisite for the successful divestiture of
government ownership. Further author opine that the entrance of the foreign banks
improves Corporate Governance of developing economy banks.
Das and Ghosh (2004)28, examined the issue of Corporate Governance in the Indian
banking system, covering period 1996-2003. It seeks to explore the link between CEO
turnover and bank performance. Results suggest that (a) CEO turnover is lower in banks
with better performance; (b) bigger banks as well as those with higher non-performing
47
loans have lower CEO turnover; (c) inadequate capital position being associated with
higher CEO turnover; (d) listing of public sector banks is associated with lower CEO
turnover; (e) for old private banks NPAs did matter but for new private banks and
foreign banks quality of asset is important; (f) capital adequacy matters for public and
old private banks but have little influence on new private and foreign banks; (g) size of
bank matters only for public banks.
Boubakri (2003)29, examine the corporate governance features of newly privatized

firms in Asia and documents how their ownership structure evolves after privatization.
The results suggest that, on the one hand, privatization leads to a significant
improvement in profitability, while, on the other hand, it creates value for shareholders.
Joh (2003)30, presents evidence on corporate governance and firm profitability from
Korea before the economic crisis and finds that the weak corporate governance system
offered few obstacles against controlling shareholders expropriation of minority
shareholders. In fact, weak corporate governance systems allowed poorly managed
firms to stay in business and resulted in inefficiency of resource allocation, despite low
profitability over the years.
Barth, Nolle, Phumiwasana and Yago (2003)31, studied the relationship between the
appropriate structure, scope, and degree of independence of banking supervision and
bank performance measured by bank profitability for 55 countries in all regions of the
world and across all income levels. Their results indicate a weak influence for the
structure of supervision on bank performance. Study found some evidence that a single
supervisor system enhances bank performance.
Anderson and Campbell (2003)32, investigate corporate governance activity at

Japanese banks. The results indicate that there does not exist any relation between bank
performance and non-routine turnover of bank presidents, in the pre-crisis (1985-90)
period, although there is an observed significant relationship between turnover and
performance in the post-crisis (1991-96) period.
48
Yamaoka (2002)33, in its comparative study of Japanese and Korean banks found that
different corporate governance approaches are followed by their 414 banking systems.
While the Korean government has placed a high priority on increasing shareholder
value in banks, the Japanese government appears to be less focused on this issue. He
also stated that the Korean banks have at least half of their boards constituted by outside
directors, while outside directors have minimal presence in Japanese banks.
Kumabhakar, Sarkar (2003)34, investigated that the total factor productivity growth
in Indian banking industry due to deregulation of industry since 1991. According to
author study also reports that the private sector banks show improved performance
through expanded output, but deregulation did not impact public sector banks in a
positive manner.According to author the Corporate Governance reforms may be a for
the successful divestiture of government ownership. According to the author the
deregulation is affected the private sector banks.
Economic Times35, stated that global rating agency Fitch said the investigation into
allegations that ICICI bank extended a loan with a potential conflict of interest raise
questions over the lenders governance and crates reputational risk. According to author
Fitch said that it will closely monitor developments and would take appropriate rating
action if risks to the banks reputation and financial profile were to rise considerably.
Oman (2001)36, defined Corporate Governance as a term refers to the private and
public institutions that include laws, regulations and the business practices which
governs the relationship between the corporate managers and the stakeholders.
According to the author the Corporate Governance is the law rules and regulations by
which the organization is managed and controlled and the conflict between
stakeholder’s interests is controlled.
Morck, Shleifer and Vishny (1988)37, analysed firm performance measured by Tobin's
Q ratio and found that the Tobin's Q increases in the early stage-indicating a positive
association between the share structure and the firm value; and decreases in the later
stage, indicating a negative relation between the share structure and firm value. In other
words, the relationship between share structure and Tobin's Q is non-linear.
49
Leftwich, Watts and Zimmerman (1981)38, found that the debt ratios of companies
which were semi-annual reporters in the US were significantly higher than the
corresponding ratios for the other reporting frequencies; and assets-in-place, used in
this context as a proxy for 28 information asymmetry, of semi-annual reporting firms
was lower than that for other reporters.
Watts and Zimmerman (1986)39, argued that companies with larger profits are more
vulnerable to regulatory intervention and hence they could be more interested in
disclosing detailed information in their annual reports in order to justify their financial
performance and to reduce political costs.
Shleifer and Vishny, (1997)40, studied that due to broader view of corporate
governance, which views the subject as the methods by which suppliers of finance
control managers in order to ensure that their capital cannot be expropriated and that
they earn a return on their investment can be extended to this sector. The authors
provide a comprehensive overview of the literature on corporate governance. Their
study portrays corporate governance as a solution to a principal-agency problem:
corporate governance mechanisms are necessary because conflicts of interest are
inherent between principals (owners) and agents (management) when the ownership
and control of a firm are separate. Corporate governance mechanisms are the economic
and legal means created by the firm to mitigate this inherent problem of ownership-
control, or principal-agency. The corporate governance structure therefore provides a
framework within which corporate objectives are set and performance is monitored,
and it provides assurance to investors that they will receive a return on their investment.
50
Chapter No. 4:
Data Analysis, Interpretation and

Presentation
51
After getting the corporate governance attributes from bank’s annual reports,
the analysis is prepared in two separate parts:
a) Shareholding pattern in Punjab National Bank and

b) Key governance parameters and their compliance status in the bank.
 Share Holding Pattern:
Timely and accurate discloser of information regarding the financial situation,

performance, ownership and Governance of the company is an important part of
Corporate Governance. It improves public understanding of the structure, activities and
policies of the organization. Consequently, the organization is able to attract investors
and enhance the trust and confidence of the stakeholders. Government ownership of
banks is a common feature in India. The reason for such ownership may include solving
the severe informational problems inherent in developing financial systems, aiding the
development process or supporting vested interests and distribution cartels. With a
government owned bank, the severity of the conflict between depositors and managers
very much depends upon the credibility of the government. Given a credible
government and political stability, there will be little conflict as the government
ultimately granted deposits.
Table 1 Share Holding pattern of Punjab National Bank for F.Y. 2012-13
Categories Share holding pattern (in %)

A. Institutional investors:
1. GOI 57.87
2. Mutual funds / UTI’s 3.18
3. Insurances companies, Banks, 15.76
Financial Institutions
4. FII’s 17.96
5. Others 0.04
B. Non institutional investors: 5.19
TOTAL 100
Source: Annual reports, various issues
52
Table 1 shows the ownership pattern of Punjab National Bank. The government
of India has highest holding in Punjab National Bank it is 57.87% during FY 2012-13,
followed by financial institutional investors (FII’s) and DII’s. The non-institutional
investors in the bank are 5.19%. Comparatively public has less portion and corporate
has nominal shareholding in the bank.
Chart 1 Share Holding pattern of Punjab National Bank for F.Y. 2012-13
Share Holding pattern (in%)

0%
GOI
5%
Mutual funds/ UTI's

18%
Insuarance companies, banks,

etc.
FII's
16% 58%
Others
Non institutional investors

3%
The above chart 1 shows the graphical representation of the share holding
pattern of Punjab National Bank. Here we can see that most of area is acquired by
Government of India that is 58%. Then comes FII’s and insurance companies which
have 18% and 16% respectively. And mutual fund and UTI’s has very less holding of
shares that is 3%.
53
Table 2 Share Holding pattern of Punjab National Bank for F.Y. 2017-18
Categories Share holding pattern (in %)

a) Institutional investors:
1) GOI 62
1) Mutual funds / UTI’s 8
2) Insurances companies, Banks, 14
Financial Institutions
3) FII’s 9
4) Others 0
b) Non institutional investors: 7
TOTAL 100
Table 2 shows the ownership pattern of Punjab National Bank. The government
of India has highest holding in Punjab National Bank it is 62% during FY 2017-18,
followed by Insurance companies, banks, financial institutes, etc. The non-institutional
investors in the bank are 7%. Comparatively public has less portion and corporate has
nominal shareholding in the bank but more than FY 2017-18.
Chart 2 Share Holding pattern of Punjab National Bank for F.Y.

2017-18
Share holding pattern (in %)

0%
7% GOI
9%
Mutual funds / UTI's
14%
Insurances companies,
Banks, Financial
62% Institutions
8%
FII’s
54
The above chart 2 shows the graphical representation of the share holding
pattern of Punjab National Bank. Here we can see that most of area is acquired by
Government of India that is 62%. Then comes insurance companies and FII’s which
have 14% and 9% respectively. And mutual fund and UTI’s has very less holding of
shares that is 8%.
Comparison between FY 2012-13 and 2017-18:
By comparing both the years we can see that the shares of GOI has been
increased having the highest holding in the PNB. Similarly, the investment like mutual
funds has been also increased. Also the ratio of Non-institutional investors has been
increased. But on other side the investment of insurance companies, FII’s, DII’s, etc.
has been decreased.
 Board Governance:
The Board of the bank is constituted in accordance with the relevant provisions of The
Banking Regulation Act, 1949, The Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970, as amended and The Nationalized Banks (Management &
Miscellaneous Provisions) Scheme, 1970, as amended.
Table 3 Board governance index of Punjab National Bank:
Particulars FY 2012-13 FY 2017-18

Board size 12 11
CEO/ Chairman Duality yes Yes
No. of meeting held 12 19
Attendance ratio of the directors (in %) 90.67 95.57
Table 3 shows that the composition of the board of directors is adequate as per
clause 49 for the entire study period. The number of the board members and board
meetings are almost consistent and much higher than the prescribed limit. So far as the
attendance is concerned approximately 95.57 percent of the board members attended
almost all the meetings held which is a good sign of corporate governance. The Board
functions either as a full Board or through various committees constituted to oversee
55
specific operational areas. The practice of dual charge Managing Director and
Chairman is seen in the bank as it can help to remove the rivalry between the two
positions and ensure governance function independently.
Chart 3 Attendance ratios of directors in meeting for FY 2012-13 and

2017-18
96
95
94
93 FY 2012-13
92 FY 2017-18
91 FY 2017-18
90
89
FY 2012-13
88
Attendance ratio of the directors
 Shareholders / Investors Grievance Committee of the Board:
SIGCB Committee monitors shareholders’ grievances received by the Bank the

Share Transfer Agent (STA) and redressed of shareholders and investors complaints
regarding transfer of shares, non-receipt of annual report, and on-receipt of interest on
bonds/declared dividends, etc.
56
Table 4 Complaint index of Punjab national bank
FY 2012-13 FY 2017-18
Shareholders complaints:
Received during the year 122 8
Pending at the end of year 2 0
Customer complaints
Received during the year 54545 53016
Pending at the end of year 236 1862
Table 4 shows that during the study period, the shareholder’s complaints have
reduced and SIGCB committee is resolving almost all the complaints received. Out of
122 complaints received from the shareholders during the financial year 2012-13, 120
were redressed and two complaints were outstanding as on 31.03.2013. Thus 99.50%
of the complaints were resolved. . Out of 8 complaints received from the shareholders
during the financial year 2017-18, 0 complaints were outstanding as on 31.03.2018.
In order to ensure customer service of a high order, the Bank has taken concerted
efforts to train the staff on the operational and behavioural aspects. Periodical reviews
and other measures are being taken on an on-going basis for improvement of customer
service to minimize the inflow of complaints. The complaints received by the Bank are
analysed and effective measures are undertaken to avoid recurrence of the same.
Comparatively less complaints where received during FY 2017-18 i.e. 53016 as

compared to the FY 2012-13 i.e. 54545, But outstanding complaints in the year 2017-
18 i.e. 1862 where more than that of FY 2012-13 i.e. 236. It means that shareholder
grievance committee has to work more on solving the customer’s complaints so that to
maintain corporate governance practices.
57
 Transparency and disclosures:
Transparency and disclosures are the main pillars of governance framework to

all the stakeholders. In less developed countries government ownership and direction
of lending in priority sector lender is the feature. So banks’ governance practices are
vital in such economies. Organizations should clarify and make publicly known the
roles and responsibilities of board and management to provide stakeholders 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 organization should be timely and balanced to ensure that all
investors have access to clear, factual information.
Table 5 Disclosure index of Punjab National Bank:
FY 2012-13 FY 2017-18
Details of Mandatory & Y Y
Non Mandatory
Requirements
Training of Board Members N Y
Whistle Blower Policy Y Y
Table 5 shows that the Punjab National Bank is implementing the provisions of
corporate governance and disclosure in the important and confidential information.
Earlier bank was not disclosing the details of mandatory and non-mandatory norms it
is following, but now there is detailed disclosure. Similarly, the bank has implemented
the whistle blower policy of its own which is a good indicator of corporate governance.
58
 Remuneration committee:
Formation of remuneration committee in a bank is a non-mandatory requirement of

the Clause 49 of the Listing Agreement. Board may set up a Remuneration Committee
to determine company’s policy on specific remuneration packages for executive
directors including pension rights and any compensation payment. It was constituted
for evaluating the performance of whole time directors of the bank in connection with
the payment of incentives, as per the scheme advised by Government of India. In public
sector banks, Government of India announced Performance Linked Incentives for
Whole Time Directors of Public Sector Banks vide Notification No.F No.20/1/2005-
BO. I dated 9th March, 2007. Remuneration Committee decides the entitlement of
Performance Linked Incentive in terms of guidelines issued by the Central Government.
However, Executive Directors draw salary as fixed by the Government of India. The
remuneration of the Chairman & Managing Director and the Executive Directors is
fixed by the Government of India. The Bank does not pay remuneration to the Non-
Executive Directors except sitting fees fixed by Government of India, for attending the
meetings of the Board or its sub-committees.
Table 6 Remuneration committee index of Punjab National Bank
FY 2012-13 FY 2017-18
Existence of Remuneration Y Y
on Committee
Remuneration on to Whole 80 61
time Directors of the Board
(in lacs)
No stock options have been issued to any Director during the year. Terms of
appointment including service contracts and notice period are as per Government
guidelines. No severance fee is payable to any Director. No performance linked
incentive was paid to the whole time directors during financial year 2017-18.
59
 Audit committee of the board (ACB):
The Audit Committee is constituted as per RBI guidelines and complies with the
provisions of Clause 49 of the Listing Agreement to the extent that they do not violate
the directives/guidelines issued by RBI. As per Clause 49, the audit committee shall
have minimum three directors as members. Two-thirds of the members of audit
committee shall be independent directors. The audit committee should meet at least
four times in a year and not more than four months shall elapse between two meetings.
Table 7 Audit committee index of Punjab National Bank
FY 2012-13 FY 2017-18
No. of Directors 8 5
No. of Meetings 11 16
Attendance of all Directors 86.05 82.50
(%)
Table 7 shows that the composition of the audit committee of the board is always
more than the minimum requirement and has gone up during the study period. But the
bank is not fulfilling the two-third requirement of Independent directors. The number
of board meetings held increased till. The percentage of attendance was highest in 2012-
13 with 86.05 per cent of the members of the audit committee attending the meetings
of the audit committee. In the FY 2017-18 attendance percentage ranged between
82.50% which is less than the FY 2012-13.
60
Chart 4 Audit committee attendance of directors in Punjab National Bank
87
86
85
84 FY 2012-13
FY 2017-18
83
FY 2017-18
82
81
FY 2012-13
80
Attendance of directors
From above chart we can see that the attendance of director in Audit committee
during FY 2017-18 were less than FY 2012-13. To follow proper corporate governance
practices the bank should maintain proper attendance ratio of the directors in all the
meetings. Due to this the interest of all the stakeholders can be protected and the Board
has 11 members with one of them a part-timer. In fact the website of the bank does not
clarify the category into which these directors fall. Incidentally it is this part-timer (non-
official director) who is supposed to play all the important roles in the audit committee.
The audit committee is not headed by a person having accounting or financial

management expertise. Similarly, the other members seemingly are no experts in
accounting.
61
 Effect of PNB scam on the balance sheet and accountability of

the bank:
Table 8 Directors report of Punjab National Bank
Particulars FY 2012-13 FY 2017-18

Net profit (in cr’s) 4748 (12283)
Gross NPA’s (in %) 4.27 18.38
Net NPA’s (in %) 2.35 11.24
In above table 8 we can find that there is high lose in the year 2017-18 to the
Punjab national bank. It states that no accurate corporate governance in followed in the
bank. The level of NPA’s has also been raised due to the effects of the scam.
Chart 5 NPA’s ratio of the PNB before and after scam:
20
18
16
14
12
10 FY 2012-13
FY 2017-18
8
0
Gross NPA's Net NPA's
The above chart shows the ratio of NPA’s that is non-performing asset that has
been raised after the scam has occurred. There must be proper auditing to be happened
so that such scam has never been happened. The NPA’s of the company should be
always low it shows the good accountability of the bank or institute. Thus lead to good
corporate governance.
62
Board should take immediate action to reduce the concentration of exposures.

It is found that the concentration of net NPAs total exposure to 2.35% in 2012-13 and
it is increased to 11.24% in 2017-18 indicating credit risk. It is suggested that the credit
risk management should take necessary steps to avoid this type of concentration of
NPAs. There should be proper Corporate Governance practices followed in the bank so
that the ratio of the NPA’s will be decreased and hence the credit risk will be decreased.
 Risk Management Committee:
Risk Management Committee (RMC) has been constituted as per RBI letter
DBOD No. BP-520/21.04.103/2002-03 dated 12.10.2002 on risk management and
Regulation 20 of SEBI (LODR) Regulations 2015. The committee has overall
responsibility of managing entire risk of the bank, devising suitable risk management
policy including credit, market and operational risks, risk integration, implementation
of best risk management practices and setting up various risk limits of the bank.
Table 9 Risk Management committee index of Punjab National Bank
FY 2012-13 FY 2017-18
No. of Meetings 4 5
(%)
The attendance of risk management committee of PNB has been increased from
2012-13 to 2017-18 it indicates good corporate governance in the Bank. But the No. of
directors are less in FY 2017-18 as compared to FY 2012-13 also the chairman of the
bank is non-executive director. The PNB should appoint good directors who can look
after the risks to the bank.
63
Chart 6 Risk Management committee attendance of directors in Punjab National

Bank
Chart Title
100
80
60
FY 2017-13
40
20
FY 2012-13
0
Attendance ratio of the directors
FY 2012-13 FY 2017-13
The below chart shows the attendance ratio of the directors in the management
committee of the PNB. According to my study the attendance ratio of FY 2017-18 is
better than the FY 2012-13. But there is not whole time directors in the board of FY
2017-18, there should be whole time directors in the meeting of management committee
so that bank can be managed efficiently and effectively.
 Nomination Committee of PNB:
The Nomination committee has been constituted as per Regulation 19 of SEBI

(LODR) Regulations, 2015 and RBI letter No. 46&47/29.39.01/2007-08 dated
01.11.2007 to determine the fulfilment of `fit and proper’ criteria in respect of
candidates submitting nominations for election as Shareholder Director(s) on the Board
of Bank, as and when elections are held. Only one meeting was held during 2017-18
and no meeting was held in 2012-13.
64
 Management Committee (MC):
Management Committee (MC) The Committee has been constituted in terms of

Section 13 of Nationalized Banks (Management and Miscellaneous Provisions)
Scheme 1970/1980. The committee considers following matters which are beyond the
discretionary powers of MD & CEO/Head Office Credit Approval Committee
(HOCAC) III: -
a) Sanctioning of credit proposals (Fund based & Non Fund based),

b) Loan compromise/write-off proposals,
c) Proposal for approval of capital and revenue expenditure,
d) Proposals relating to acquisition and hiring of premises including deviation
from norms for acquisition and hiring of premises,
e) Proposals relating to filling of suits/appeals, defending them etc.
Table 10 Management committee index of Punjab National Bank:
FY 2012-13 FY 2017-18
(%)
In above table we can see that the attendance of the no. of directors of the
management committee is more in FY 2017-18 than that of FY 2012-13. But the
directors are less for the meeting that that for the FY 2012-13. PNB should appoint
good directors and trustful directors for the management committee so that the
management of the bank will be leading.
65
Chart 7 Management committee attendance of directors in Punjab National

Bank
Chart Title
92
91.5
91
FY 2017-18
90.5
90
89.5 FY 2012-13
89
Attendance ratio of all Directors
FY 2012-13 FY 2017-18
The above chart shows the attendance ratio of the directors in the management
committee of the PNB. According to my study the attendance ratio of FY 2017-18 is
better than the FY 2012-13. But there are not whole time directors in the board of FY
2017-18, there should be whole time directors in the meeting of management committee
so that bank can be managed efficiently and effectively. Which leads to good sigh of
 Head Office Credit Approval Committee:
The HO Credit Approval Committee Level III has been constituted in terms of
the Nationalized Banks (Management and Miscellaneous Provisions) Scheme 1970 and
Department of Financial Services (DFS), Ministry of Finance (MoF) notification dated
05.12.2011. It considers the credit proposals above 150 crores and up to 400 crore
(standalone) and above 300 crores and up to 800 crores (group exposure). The
committee also considers OTS/Compromise/Write off proposals to the extent of powers
earlier vested with MD & CEO
66
Table 11 Head Office Credit Approval committee index of Punjab National

Bank:
FY 2012-13 FY 2017-18
Attendance of all Directors 94.73 88
(%)
In the above table we can see that the directors in head office approval
committee are more in FY 2017-18 then in FY 2012-13. And on other side the number
of meetings held and attendance of all directors are more in FY 2012-13 than in FY
2017-18 that is 94.73% and 88% respectively.
Chart 8 Head Office Credit Approval committee attendance of directors

in Punjab National Bank
Chart Title
96
94
92 2017-18
90
88
2012-13
86
84
attendance of directors
2012-13 2017-18
67
In the above chart we can see that the attendance ratio of directors in head office
credit approval committee is more in year 2012-13 than in 2017-18 that is 94.73% and
88% respectively. There must be proper attendance ratio maintained by the director’s
in head office credit approval committee and number of meetings held should be
increased.
 Special Committee of the Board to monitor the progress of

recovery:
The Committee has been constituted in terms of DFS, MoF letter

F.No.7/112/2012-BOA dated 21.11.2012 and F.No.7/2/2015-Recovery dated
01.01.2016 to: Review the ways and strategies
1. to improve NPA management and effective utilization of various tools to

expedite recovery.
2. Monitor the progress of recovery in NPAs including prudential written-off
accounts.
3. Review the status of cases/RCs pending at DRTs/ DRATs.
4. Review the credit monitoring mechanism and status of irregular/weak accounts
and the steps for prevention of NPAs.
Table 12 Special committee index of Punjab National Bank:
FY 2012-13 FY 2017-18
Attendance of all Directors 87 89
(%)
In the above table we can see that the number of directors in special committee
of board are equal in both the financial years. The number of meeting held and
attendance of all directors are more in FY 2017-18 than in FY 2012-13 that is 87% and
98% respectively.
68
Chart 9 Special committee attendance of directors in Punjab National Bank
Chart Title
89
88.5
88 FY 2017-18
87.5
87
86.5 FY 2012-13
86
Attendance of directors
FY 2012-13 FY 2017-18
In the above chart we can see that the attendance ratio of the directors in the
special committee is more in FY 2017-18 than in FY 2012-13 that is 89% and 87%
respectively. It means that the working and maintenance of the special committee is
been improved and hence the corporate governance practices are followed.
Punjab National Bank also follows various rules and framework of corporate
governance. It also has more committees in its report of corporate governance like
stakeholder’s relationship committee, head office credit approval committee,
Committee for Review of identification of Wilful Defaulters, Non-cooperative
Borrowers Classification Review Committee, Special Committee of Board – For
monitoring fraud cases, etc.
PNB should tighten its corporate governance practices and make the rules and
regulations strictly to be followed by every director of each committee. So that the
frauds will not happen again in the bank and thus protect the interest of all the
stakeholders.
69
 Findings:
1. Punjab National Bank also follows various rules and framework of corporate
governance.
2. It also has more committees in its report of corporate governance like
stakeholder’s relationship committee, head office credit approval committee,
Committee for Review of identification of Willful Defaulters, Non-cooperative
Borrowers Classification Review Committee, Special Committee of Board –
For monitoring fraud cases, etc.
3. PNB has proper shareholding pattern formed. The shares of GOI is more in FY
2017-18 than in FY 2012-13.
4. The board governance committee is governing well and the attendance ratio is
better in recent days.
5. The shareholder grievance committee is performing well and all grievance of
shareholders are solved.
6. The investors grievance committee is not able to solve the customer’s
complaints in FY 2017-18 as according to year 2012-13.
7. The transparency and disclosers of PNB are improved which leads to good
8. The attendance in the audit committee is less in FY 2017-18 than in FY 2012-
13.
9. In this study I had found that the net profit of PNB is decreased in FY 2017-18,
and the ratio of NPA’s has been increased.
70
 Solutions:
1. customer’s complaints pending are increased during the year 2017-18 when
compared to the previous year 2012-13. Consumer service committee must take
initiative steps to satisfactorily address customers‟ complaints.
2. the credit risk management should take necessary steps to avoid this type of
concentration of NPAs.
3. The audit committee should be headed by a person having accounting or
financial management expertise.
4. The ratio of NPA should be maintained by the PNB, by practicing good
5. The management committee should contain proper directors to manage the
bank.
6. The attendance ratio of head office credit approval committee should be
increased.
7. Bank should appoint more committees and manage them properly for the perfect
corporate governance practices. Hence the PNB scam will not happen again.
71
Chapter no 5:
Conclusion and suggestion
72
CONCLUSION:
Even though the PNB is showing good performance and implementing

provisions of corporate governance, some lapses have to be rectified for increasing the
performance. According to my study I have concluded that in the past 5 years the
corporate governance practices are improved very much. But still it is needed to follow
more good corporate governance so that such scam will not happen again. The audit
committee of the PNB should be improved and only experienced, highly qualified and
trusted directors should be appointed and only whole time directors should be
appointed. The attendance ratio of these directors should be increased in the board
meetings.
The study found that, the PNB is implementing almost all the provisions of
corporate governance according to the Clause 49 and the RBI/GOI directions. It is
found that Punjab National Bank, the country’s one of largest commercial bank in the
public sector, is performing well. The study found that the PNB conducted different
board meetings regularly to provide effective leadership, functional matters and
monitors bank’s performance. It is found that the PNB established clear documentation
and transparent management processes for policy development, implementation,
decision making, monitoring, control and reporting. Bank is good in on the disclosure
of the statement of company philosophy on code of governance. Regarding the structure
and strength of the board, the bank for all the years has sufficiently disclosed the
composition of board of directors and composition is well within norms.
Disclosure of remuneration policy and remuneration of directors during the

years was good and disclosed. Disclosure on remuneration committee is also given in
the annual report. Composition of audit committee is as per the clause but it lacks
independency as two-third of the members of the committee is not independent
directors.
Shareholders/investors grievance committee is disclosing the information in the

annual report. Shareholders’ complaints and customers’ complaints are given proper
attention and being timely redressed. The bank is good in disclosing the information
treated to mandatory and non-mandatory implementation, training of board members,
whistle blower policy etc.
73
Finally, this study concluded that, the corporate governance practice in the State Bank
of India should improve for best investment policies, appropriate internal control
systems, better credit risk management, better customer service and adequate
automation in order to achieve excellence, transparency and maximization of
stakeholder’s value and wealth.
SUGGESTIONS:
The study found that customer’s complaints pending are increased during the
year 2017-18 when compared to the previous year 2012-13. Consumer service
committee must take initiative steps to satisfactorily address customers‟ complaints.
Board should take immediate action to reduce the concentration of exposures.

It is found that the concentration of net NPAs total exposure to 2.35% in 2012-13 and
it is increased to 11.24% in 2017-18 indicating credit risk. It is suggested that the credit
risk management should take necessary steps to avoid this type of concentration of
NPAs.
Looking at the website of PNB, the corporate governance and annual reports,
the Board has 11 members with one of them a part-timer. In fact, the website of the
bank does not clarify the category into which these directors fall. Incidentally it is this
part-timer (non-official director) who is supposed to play all the important roles in the
audit committee.
Similarly, the Board being headed by a NED and as a consequence only 1/3rd of
the Board needs to be NEDs. However, a cursory look will show that two of the
directors are government nominees. Importantly, as per the present SEBI listing rules
these nominee directors cannot be considered as NEDs’. In fact, NEDs are not passive
actors on the board, but have crucial role to play. NEDs are supposed to constructively
challenge and help developing proposals on ‘strategy’. Similarly, they also have a
crucial role to play in scrutinizing the performance of management systems. Precisely,
the PNB scam shows that the NEDs have failed on all these counts.
Looking at the corporate governance and annual reports of PNB, you find that
the audit committee is not headed by a person having accounting or financial
management expertise. Similarly, the other members seemingly are no experts in
accounting (although this is not a requirement), and the government nominees are
74
shown as NED’s which against the SEBI regulation. The audit committee is having
another critical element of corporate governance, and here too the PNB has been willing
to compromise. Now it is not our role to cast aspersions on the capability of neither
these directors nor the efforts they have put in, but to query these concerns that seem
glaring in the light of the emergent scam.
75
Bibliography
1. Chilumuri, Srinivasa Rao (2013), “corporate governance in banking sector: A

case study of State Bank of India” IOSR Journal of Business and management.
2. TyagiEt’al (2013), “Corporate Governance practices in India: A corporative
study of selected Banks”
3. BrahmbattEt’al (2012), “An Empirical investigation of Corporate Governance
scenario in Public v/s Private Banks in India” International journal of marketing,
financial services and management Research.
4. Subir Roy, “India’s Bank crisis: Poor corporate governance is hurting both
public and private institutions”.
5. N. Balasubramanian, Rejie George, “Corporate Governance and the Indian
institutions context: Emerging mechanism and challenges”
6. Norwani (2011), “Corporate Governance failure and its impact on financial
reporting with in selected companies”.
7. Humayan K.M and Adelopo I. (2012), “Corporate Governance disclosed
practices by Swaziland public enterprise” in African journal of business
management.
8. Motwani, S.S. and Pandya H.B. (2013) “sectorial analysis of Corporate
Governance in India”
9. Madhani P.M. (2014) “Corporate Governance and disclosure practices in India
: Domestic Banks versus Cross listed Banks.”
10. T.G. Arun and J.D. Turner (2004), “Corporate Governance of Bank in
Developing Economics: Concepts and issues, corporate governance : An
International review”
11. A.P. Pati “Does Corporate governance matters in Indian Banking?”
12. Kaur H. (2012), “A comparative study of Corporate Governance Disclosure by
private and public sector bank in India” in International journal of business
research.
13. Sinha Ram Pratap (2008), “Ownership and efficiency : A non Radical
Performance Comparison of Indian Commercial Banks.”
14. Hossain Mohammed (2007) “the Corporate Governance reporting exercises.
The portrait of a developing country” international Journal of business research.
15. Jayati Sarkar and Subrata Sarkar (2016) “Bank ownership, Board
Characteristics and performance Evidence from Commercial banks in India”
16. Kumabhakar and Sarkar (2003) “Deregulation ownership and productivity
growth in the business industry: Evidence from India” Journal of money, credit
and banking.
17. SakthivalMurugan M. (2010), “Impact of corporate governance on financial
performance of Banks and financial institutions”
18. Kajal Chaudhary and Monika Sharma (2011), “performance of Indian Public
sector banks and private sector banks : A comparative study”.
19. Shleifer, A., and R.W.Vishny (1997), ‘A survey of corporate governance’,
Journal of Finance, Vol.52. Boubakri, N, J Claude-Cosset and O Guedhami
(2003), ‘Privatisation, Corporate Governance and Economic Environment:
Firm-Level Evidence from Asia’, Pacific-Basin Finance Journal, 281.
20. Joh, S W (2003): ‘Corporate Governance and Firm Profitability: Evidence from
Korea before the Economic Crisis’, Journal of Financial Economics, 68.
21. Barth, J.R., D.E. Nolle, T. Phumiwasana and G. Yago (2003), ‘A Cross-Country
Analysis of the Bank Supervisory Framework and Bank Performance’,
Financial Markets, Institutions & Instruments, Vol. 12(2), May, pp.67-120,
Malden, MA: Blackwell Publishing Inc.
22. Anderson, C W and T L Campbell (2003): ‘Corporate Governance of Japanese
Banks’, Journal of Corporate Finance, Vol 189.
23. Andres, PD &Vallelado, E (2008), “Corporate governance in banking: The role
of the board of directors”, Journal of Banking & Finance, 32 (2008) 2570–2580.
24. Yamaoka, T. (2002), ‘Corporate Governance Underpins Divergent Fortunes of
Japanese, Korean Banks’, Treasury Management.
25. Pati, A.P. (2006), ‘Does Corporate Governance matter in Indian Banking?
Policy implications on the performance’, Indian Institute of Capital Markets’
9th Capital Markets Conference Paper.
26. Banerjee, A. (2005), ‘Corporate Governance: A Relook into the Indian Banking
System’, available at http://ssrn.com.
27. Das, A., and S. Ghosh (2004),‘Corporate Governance in Banking System: An
Empirical Investigation’, Economic and Political Weekly, March 20, pp.1263-
1266
28. PNB incident: new tech and strong corporate governance needed to check fraud
the Indian express
29. PNB scam the corporate governance failure delhipostnews.com
30. www.economictimes.com
31. Annual report 2012-13, corporate governance report of Punjab National Bank.
32. Annual report 2017-18, corporate governance report of Punjab National Bank.
33. www.pnb.com

Corporate Governance in Indian Banking Sector - PNB

Uploaded by

Copyright:

Available Formats

Corporate Governance in Indian Banking Sector - PNB

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Corporate Governance in Indian Banking Sector - PNB

Uploaded by

Copyright:

Available Formats

Corporate Governance in Indian Banking Sector -

Punjab National Bank (PNB)

University Of Mumbai For Partial Completion Of The Degree

Of Bachelor In Commerce (Banking And Insurance)

Under The Faculty Of Commerce.

Under the guidance of

PROF. MRS. MEENAKSHI ARYA

K.G. JOSHI COLLEGE OF ARTS

AND N.G. BEDEKAR COLLEGE OF COMMERCE,

Mr. Sairaj Anil Naik

Prof. Mrs. Meenakshi Arya

Chapter no. 1: Introduction

The meaning of Corporate Governance can be explained as about promoting

is necessary because of the possibility of conflicts of interests between the stakeholders,

Corporate Governance includes the processes through which corporation’s

Governance practices can be scan as attempts to align the interest of

Corporate Governance is the set of process, customs, policies, laws and

Corporate Governance is a multifaceted subject. An important part of Corporate

Corporate Governance is the system by which companies are directed and

The board of directors is the primary direct stakeholder influencing Corporate

Corporate Governance ensures transparency which ensures strong and balanced

 Cadbury Report (UK), 1992:

“Corporate Governance is the system by which company are directed

 Sir Adrian Cadbury:

“…to do with Power and Accountability; who exercises power, on

“Corporate Governance involves a set of relationships between a

“Corporate Governance is the application of best management practices,

1.3 CORPORATE GOVERNANCE AND THE BOARD OF

The board of directors is the primary direct stakeholder influencing Corporate

1.4. GOOD AND BAD GOVERNANCE:

Bad Corporate Governance can cast doubt on a company's reliability, integrity

Companies that do not cooperate sufficiently with auditors or do not select

Good Corporate Governance creates a transparent set of rules and controls in

1.5. BENEFITS OF CORPORATE GOVERNANCE:

1. Good Corporate Governance ensures corporate success and economic growth.

1.6. PRINCIPLES OF CORPORATE GOVERNANCE:

Contemporary discussions of Corporate Governance tend to refer to principles raised

 Rights and equitable treatment of shareholders:

Organizations should respect the rights of shareholders and help

 Interests of other stakeholders:

 Role and responsibilities of the board:

 Integrity and ethical behavior:

Integrity should be a fundamental requirement in choosing corporate

 Disclosure and transparency:

1.7. CORPORATE GOVERNANCE HISTORY IN INDIA:

Need for Corporate Governance arises due to separation of management from

20th century witnessed the glossy of Indian Economy due to liberalization,

1.8. IMPORTANT ISSUES IN CORPORATE GOVERNANCE

4. Disclosure, transparency, and accountability: Disclosure, transparency and

5. Corporate Governance and Human Resource Management: For any corporate

7. Necessity of Judicial Reform: There is necessity of judicial reform for a good

8. Globalization helping Indian Companies to become global giants based on good

1.9. INDIAN MODEL OF CORPORATE GOVERNANCE:

SEBI is playing a key role in Corporate Governance in India.

These developments in U.K. had significant influence on India. Confederation

Corporate Governance has once again become the focus of media/public

1.10. ROLE OF LAW IN CORPORATE GOVERNANCE:

1.11. PERSPECTIVES OF CORPORATE GOVERNANCE: