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Report of the Joint Parliamentary Committee on Stock Market Scam
DBOD.
No. BC. 61 - 08.139.001 dated 17th January 2003
As
you are aware, Reserve Bank had issued a circular DBOD. No. BC. 116/ 08.139.001/
2001-2002 dated June 20, 2002 enclosing a copy of Dr. Ganguly Group Report and
list of recommendations to be implemented (as Annexure)
for placing before the Board of Directors. The banks have also been advised to
adopt and implement the recommendations in the Annexure based on the decisions
taken by the Board.
2. The Joint Parliamentary Committee (JPC) on
Stock Market Scam have observed in paragraph 10.89 of their report that it is
imperative for the banks to follow strategies and techniques which are basic to
the tenets of sound corporate governance, which include:
(i)
Capable and experienced Directors
(ii)
Efficient management
(iii)
Coherent strategy and business plan and
(iv)
Clear lines of responsibility and accountability.
3. In this context mention has been made in the
JPC report about the recommendations of Advisory Group on Banking Supervision
set up by RBI under the chairmanship of Shri M.S. Verma, which submitted its
report in May 2001, with regard to sound corporate governance. The Joint Parliamentary Committee while endorsing these
recommendations has desired that the same be implemented expeditiously.
4. In view of the foregoing we advise that the
banks should also take immediate action on the recommendations of the Advisory
Group on Banking Supervision pertaining to strengthening of MIS and internal
control mechanism in their institution, as indicated in the Annexure to this
circular.
5.
Please acknowledge receipt.
ANNEXURE
GUIDELINES
ON CORPORATE GOVERNANCE MEASURES BASED ON THE RECOMMENDATIONS OF ADVISORY GROUP
ON BAKING SUPERVISION (CHAIRMAN - M. S. VERMA)
1.
Strengthening of Risk Management Framework
(i)
The formation and operationalisation of Risk Management Committee should
be speeded up and their role further strengthened.
(ii)
The Directors should acquaint themselves with risk management techniques.
2.
Review of connected lending
Exposure to related
entities of the bank and the asset classification of such lending / investment
may be periodically reviewed by the Boards.
3.
Constitution of Committees
Conformity with
Corporate Governance standards, viz in constitution of various committees, their
role and functions, periodicity of the meetings and compliance with coverage and
review function etc. may be ensured.
4.
Strategic business plan and grass root level percolation thereof.
(i)
Banks should develop mechanisms, which can help them ensure percolation
of their strategic objectives and corporate values throughout the organization.
(ii)
Boards need to set and enforce clear lines of responsibility and
accountability for themselves as well as the senior management and throughout
the organization
5.
Improvement in internal control systems
(i)
Boards of banks should modify their approach towards internal controls so
that they have a firmer say in the maintenance and improvement of internal
control systems. Discussions between the managements and boards of banks on
quality of internal control systems should be institutionalised.
(ii)
The boards of banks should specifically pay attention to creating and
sustaining a culture of control in banks.
(iii)
More awareness needs to be promoted among senior management in regard to
security, risk and controls in computerised environment.
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