Does Corporate Govenance Matter in Indian Banking? Policy Implication on the Performance

Banks being the most influential institutions in the financial sector their governance is of crucial importance. The post implementation scenario of corporate governance policies in Indian banking, which was undertaken after the recommendations of Advisory Group (2001) and others, has brought mixed outcomes. Along with qualitative changes in disclosure practices most of the banks have shown handsome profit and low NPAs. Statistically significant correlations of governance with important financial variables on expected lines have been found for banking in India. Strong impact of governance has also been observed for all the variables in public sector banks and in all scheduled commercial banks. A greater degree of disintermediation in the financial sector has put pressure on the bank deposit mobilization and on the other side the opening of economy has brought more global integration with an adverse impact on loan disbursement. The growth of other channels of savings, growth of capital market and the possibility of full capital account convertibility in future will put bank governance for a litmus test. More dispersed ownership, withdrawal of safety nets, reduction of preemptive norms, more exposure to market discipline and spirited implementation of various measures are required for ensuring better governance in Indian banking