Corporate Governance in Indian Context Date: 24-Mar-2018 Jaipur

Corporate Governance in Indian Context Date: 24-Mar-2018 Jaipur

Corporate Governance in Indian Context Date: 24-Mar-2018 Jaipur INDEX S No. Headings Corporate Governance & Key Stakeholders for 1 Corporate Governance 2 Historical Background of Corporate Governance 2 Corporate Governance, its Enablers & Structure 3 Corporate Governance Why Important 4 Regulatory Framework & Other Developments 5 Setting Right Organisation Structure 2 Historical Back Ground for Corp. Governance in India Regulatory Development Objectives & Year 1997 CII Code on Corporate Governance CII was first to publish code of Corp. Governance where constitution of Audit Committee was recommended

2000 Kumarmangalam Birla Committee This committee gave 25 recommendation of Corp. Governance for Listed Companies and to incorporate the same in Listing Agreement with the Stock Exchange 2002 Naresh Chandra Committee Committee major recommendation were to form AC consisting of all independent directors, rotation of Auditors after 5 years term 2003 Narayan Murthy Committee The review of the Scope of Audit Committee was deliberated and it was suggested to include the MDNA, reports related to compliance & risks and on Related Party Transaction Changes in Clause 49 of Listing Agreement 2003-SEBI 2011 Co. Bill It brought about changes to bring Corporate Governance norms reporting mandatory 2013 Co. Act, 2013

NRC, Stakeholder Committee, Separate Committee Meeting of Independent Directors, CSR Provisions for social Outreach program was implement 2015 SEBI LODR, 2015 With a view to align and simplify the Regulatory norms for Listed Entities, guidelines were consolidated in 1 set ContHistorical Back Ground for Corp. Governance in India Regulatory Development & Year Objectives 2017 Uday Kotak Committee recommedation 1. Panel suggested that it was the the right time to split chairman, MD-CEO role of listed companies 2. Panel suggested it should be mandatory for top 500 companies by market capitalization to undertake D&O insurance for its independent directors. D&O Insurance stands for Directors and Officers insurance 3. Panel suggests minimum of 6 directors to be on board of listed entities; every listed entity to have at least 1 independent woman director 4. Panel suggested more transparency on appointment of independent directors; wants them to play a more active role on the boards 5. Panel suggested maximum number of listed entity directorship to be reduced to 8. At least half of every listed entities board to have independent directors

6. Panel suggested Audit Committee must review use of loans/adv/ investment by holding co in arm over Rs 100 crore 7. Panel suggested application to fill a casual vacancy of office of any Independent Director must be okayed by holders; minimum number of Audit Committee meetings be increased to five every year 8. Panel suggested no person to be appointed as alternate director for an independent director of a listed company 9. Panel suggested a formal induction should be mandatory for every new Independent Director appointed to the board 10. Panel suggested BoD to be updated on regulatory & compliance changes at least once a year; as well as an interaction between NEDs & senior management 2017-18 Constitution of National Financial Reporting Authority to place monitoring mechanism over CA firm. Whip on Shell Companies and disqualification of Directors with 1.06 lakh (1,06,578) disqualified directors with association to shell or on-paper companies Corporate Governance - Meaning Corporate governance is a process and mechanism set up for the corporations and firms based on certain guidelines and principles by which a company is controlled and directed. The underlying principles are there to ensure that the company is governed in a way that it is able to set and achieve its goals and objectives in the context of the social, regulatory and market environment in transparent manner, and is able to maximize shareholders value and benefit

those whose interest is involved in it, in the long run. Corporate Governance Enablers Accounting & Financials Controls Internal Audit and Assurance Regulatory Compliances and Reporting Risk Management and IT Security Right Organisation Approach and Structure Simplified Corporate Governance Structure Why Corporate Governance Important ? Promote the TRUST OF INVESTORS Good corporate governance has a POSITIVE LINK TO ECONOMIC DEVELOPMENT AND GOOD CORPORATE PERFORMANCE Promote the efficient use of scarce resources Funds will flow to entities which are seen to have INTERNATIONALLY ACCEPTED STANDARDS OF CORPORATE GOVERNANCE What if Corporate Governance is not there ? Financial scandals and crisis Loss of trust of investors

Loss due to Lack of Controls Loss due to Lapses in the way IT and other Risks are managed Loss of Reputation due to incidents being report and Market Cap More than 1 Lac Cr. lost by Banking Sector itself (Fraud by Wells Fargo: https://www.youtube.com/watch?v=sOBmn0xU7wY Kingfisher, Geetanjali Gems, Saradha Group, Global Trust Bank, Regulatory Framework & Other Developments Companies Act Changes/Developments The Companies Act, 2013 & Secretarial

Standards 1 SEBI Other Regulatory Developments Board constitution, Board meetings, Board processes, independent directors and general meetings

Prior Approval of related party transactions, disclosure requirements in financial statements in Boards report Separate Meeting of Independent Directors meting CSR Provisions for sustainability initiatives Corporate Social Responsibility Policy Whistle Blower Mechanism Anti-Bribery Policy Formation of NCLT and NCALT for early resolution of NPA Guidelines on Performance Evaluation of Board Clause 35 B The e-voting facility has to be provided to the shareholder for any resolution is a legal binding for the company. SEBI Listing Obligations and Disclosure requirements, 2015 including Committee Structure Implementation of GST Bankruptcy Code Data analytics on credit flow for CIC Companies & CERSAI BOARD & COMMITTEES REQUIRED UNDER LODR, 2015 Board/Committee & Activities (Reg. 17-21) Constitution Board Optimum combination of executive and nonexecutive directors At least one woman director Not less than 50% non-executive directors Independent directors

Shall meet at least four times a year Audit Committee: This committee should consist of at least 3 Review of Financial Reporting and Controls members & Compliance with Applicable accounting Standards 2/3 of Directors should be Independent and applicable Laws Directors & Chairman Should be Independent Internal Audit & Branch Audit Reports Director Risk Management Committee: No Such Requirements Review of Banks risk management stratgies, processes and controls Review of Credit Risk & NPA Management of (Retail & Wholesale) , Operational Risks, Information Technology & Security related Risk and ALM & Market related Risk. Nomination & Remuneration Committee: This committee should consist of at least 3 Compensation policy for Directors, KMPs and other Non-executive Directors as members and 50% Sr. employees. of Members should be Independent Directors

Nomination and Succession Plan for above officials Evaluation of performance of Directors, KMPs and other Sr. employees including Administration of ESOP Plans Stakeholders Relationship Committee: No Minimum, Chairman shall be Non-Executive Review and resolution of the grievances/ queries Director of the security holders of the Bank and ensures expedite resolution of grievances/ queries. Corporate Social Responsibility Committee: > Co. Act, 2013 requirement Formulate and review the Corporate Social > Minimum of 3 members Responsibility (CSR) strategy for Social Outreach > Chairman shall be Independent Director Regulatory Framework & Other Developments Other Changes/Developments Accounts and Financial controls

Additional Disclosure in Directors report under Section 134 Section 129 of the New Companies Act inter alia provides that the financial statements shall give a true and fair view of the state of affairs of the company Internal Audit & Assurance Lot of Emphasis being placed on Mandatory list of items to be reviewed by Audit committee and in Banking sector the Audit Committee calendar of reviews being fixed Terms of reference being covered under Companies Act, 2013 and LODR also to broaden its scope. Internal Audit is being developed as assurance job wherein various activities are being carried out in manner laid down in the process and suggest improvements. Audit has become more efficiency led approach then fault finding process. Risk Management Risk Management is focusing on taking advantage of Technological advancement both to curb the risk of IT fraud and also to improvement in areas of implementation of Risk Strategies.

Right Organisation Approach & Structure Approach Actions Knowing what Governance Structure is With Evolving Business environment, Organisations are focusing more on what should be the Right Board and Management Structure should be and acting accordingly. Right Mix of Executive and Non-Executive Directors Focus on True Independence of Directors Linking of Executive Compensation & Performance Evaluation Strategic Alignment in Unity of Direction & of Command between CEO and Board and Sr. Management How Business should be run Risk Management &

Assurance Functions Clearly Articulated mission and vision Achievement oriented culture and fair treatment at all levels Workable Board Size Focus on Improvements Working on removing ambiguities and duplication Fair and Transparent Treatment of Employees at all levels Policies and Zero Tolerance Governance framework Strong Risk Management and Responsive approach leads to strong message at all levels Internal Audit department focusing on assurance and improvements Thank You Manmohan Parnami [email protected] [email protected] Cell no. 9001111345

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