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Indian banks face critical governance issues

December 06, 2005 15:10 IST

In the post-Enron scandal world and at a time when interest in stock markets in India is very substantial, prominent experts and professionals will gather in Mumbai to discuss critical issues of governance being faced by major Indian banks.

The basic objective of the high-level closed-door session is to "try to provide an in-depth understanding to directors of bank on corporate governance issues," senior advisor to the Institute of International Finance in Washington DC which along with IIM, Bangalore and the Indian Banks' Association is holding the two-day meeting from December 14, said.

Ahead of his first visit to India, Price, president of the International Financial Development Corporation, told reporters that corporate governance as a serious theme started getting into focus three years ago with the basis objective of looking at the framework of governance and the state of play.

Price, who will soon be moving to be president of Federal Home Loan Bank in Pittsburgh whose assets are in the neighbourhood of $75 billion or more, said one of the things that the Mumbai meet will see is the bringing in of Regulators and experts who will be looking at the legal framework, risk management issues and how in general does the market look at issues of governance.

He pointed out, for instance, that legal responsibilities is something that Indian Banks have to pay careful attention to these days given that many of them are very active outside of India.

And so was risk management for directors, a 'black box' that is not easily understood, Price said.

The programme in India will have different facets over and beyond the generic and academic discussions of issues involved between the board and the management, the self interests involved or on how to deal with an 'overactive CEO.'

Price underlined the criticality of governance in the area of banking where issues are very specific and 'heavily influenced by public policy and regulation.'

The conference in Mumbai is both for the public and private sector banks and will see the participation of the Governor of the Reserve Bank of India, Y Venugopal Reddy.

Price and Gregory Fager, the Director of the Asia Pacific Department of the IIF, stressed that the financial sector in India is very important not just within the framework of rapid domestic economic but also in terms of competition from China.

With the success of economic reforms in India it was hoped that 'impediments' in the way of the financial sector reforms would be 'dismantled at a faster pace.'

On a more general level Fager argued that in terms of the political environment in India the underlying consensus was that the reforms are there to stay but that the 'pace' of reforms is an issue.

The senior IIF official said that progress 'is less than desirable' and there has been some intransigence and stalling.

Sridhar Krishnaswami in Washington
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