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Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business Mcom sem 4 Delhi University

Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business Mcom sem 4 Delhi University

Before understanding the concept of Corporate Governance (CG) in India, more particularly in banks, it is essential to get insight into Administration and Governance as distinct from CG. Broadly speaking, administration is an off shoot of governance and governance is the subset of CG but the terms are not that simple as it looks. They have far reaching implications when their implementation in the bank comes into picture. Banks are large institutions with a range of delivery models with interplay of products and services. Most important is the human resource element where standardization is difficult to enforce. Software and hardware may function in a similar fashion within the given framework and set of instructions but human resources have mind to different call in a similar set of situations. It is very difficult to comprehend human mind and bring about standardization in their actions. But there are set rules and conditions laid down in banks that bind the behavior of the employees. Its enforcement needs constant monitoring and checks and balances to ensure that they conform to the rule book. Here comes the role of Administration. Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University.

Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University.

Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University.

Administration

It is the act or process of administering, especially running the management of a government or large institution or a bank by enforcing the codified rules and conditions. It is the activity of a government or state or a bank in the exercise of its powers and duties. Often the Administration also means the management of any office, business, or organization; direction or the duty or duties of an administrator in exercising the executive functions of the position. Administrators, broadly speaking, engage in a common set of functions to meet the organization’s goals. These “functions” of the administrator were described by Henri Fayol as “the 5 elements of administration”. Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University.

  • Planning – is deciding in advance what to do, how to do it, when to do it, and who should do it. It maps the path from where the organization is to where it wants to be. The planning function involves establishing goals and arranging them in a logical order. Administrators engage in both short-range and long-range planning.
  • Organizing – involves identifying responsibilities to be performed, grouping responsibilities into departments or divisions, and specifying organizational relationships. The purpose is to achieve coordinated effort among all the elements in the organization (Coordinating). Organizing must take into account delegation of authority and responsibility and span of control within supervisory units.
  • Staffing – means filling job positions with the right people at the right time. It involves determining staffing needs, writing job descriptions, recruiting and screening people to fill the positions.
  • Directing (Commanding) – is leading people in a manner that achieves the goals of the organization. This involves proper allocation of resources and providing an effective support system. Directing requires exceptional interpersonal skills and the ability to motivate people. One of the crucial issues in directing is to find the correct balance between emphasis on staff needs and emphasis on economic production.
  • Controlling – is a function that evaluates quality in all areas and detects potential or actual deviations from the organization’s plan. This ensures high-quality performance and satisfactory results while maintaining an orderly and problem-free environment. Controlling includes information management, measurement of performance, and institution of corrective actions.
  • Budgeting – exempted from the list above, incorporates most of the administrative functions, beginning with the implementation of a budget plan through the application of budget controls. Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University.

Governance

 Governance, in general terms, means the process of decision making and the process by which decisions are implemented (or not implemented), involving multiple actors. Good governance is one which is accountable, transparent, responsive, equitable and inclusive, effective and efficient, participatory and which is consensus oriented and which follows the rule of law

  1. Corporate Governance:

With the faster pace of corporatization, the volumes of market capitalization have globally increased at exponential pace. More and more investors across the globe explore equity markets for investments and profit earning opportunities. Innovative methods of accessing funds and efforts of leveraging capital have accentuated the sensitivity of risk. The corporates are susceptible to the pitfalls of over leveraging their capital resources resulting in imbalanced exposure, sometimes even to the unknown downside risks.  Thus the influx of funds into the stock market from various sources has heightened the onus of regulators to protect investor interest thereby making the task much more challenging. Ensuring that the end use of investor funds are prudent and are in conformity with the global best practices is a tough task posing a sustained pressure on regulators to innovate better ways and means.

In this context, corporate governance has come to occupy a prominent position in modulating the conduct of the companies who raise funds through equity market. Public listed companies, financial institutions, banks   and other corporate accessing funds from public have to be made to follow rigid discipline in its governance, more so in the application of funds to protect the long term interests of the organizations.

Coming to the specific aspects of bank dominated Indian financial system; effective financial intermediation is the life line of sustainable development of the economy. Though we have multiple segments of banks such as Public Sector Banks (PSBs), New Private Sector Banks (NPSBs), Old Private Sector Banks (OPSBs), Cooperative Banks, Regional Rural Banks (RRBs) and Foreign Banks, about 70 per cent of the banking business is held by PSBs comprising of SBI, its subsidiaries and the nationalized banks.Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University.

Banks access capital market to shore up their capital adequacy needs in terms of the norms set by the Bank for International Settlement (BIS).The banking intermediaries engaged in mobilizing deposits and lending them to the needy sector for sustained growth of agriculture, industry and commerce have a critical role to play in the economy. Therefore the functions of banks are sensitive calling for utmost prudence in governance. This backdrop firms up the significance of corporate governance in banks for sustained growth of financial system.

Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business Mcom sem 4 Delhi University

Crystallization of concept of Corporate Governance:

With this background of genesis of Corporate Governance practices across the globe, it may be pertinent to recall the earliest definition of Corporate Governance by the Economist and Noble laureate Milton Friedman. According to him, Corporate Governance is to conduct the business in accordance with owner or shareholders’ desires, which generally will be to make as much money as possible, while conforming to the basic rules of the society embodied in law and local customs. Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University.

Some more established definitions state that “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders and also the structure through which objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined” Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University.

 According to Shri Kumar Mangalam Birla “fundamental objective of corporate governance is the ‘enhancement of the long-term shareholder value while at the same time protecting the interests of other stakeholders.”

The spirit of these definitions clearly bring to fore the significant role of Corporate Governance. If the Corporate Governance is implemented in totality in banks, it will have impact on the overall health of the banking system reflected in the form of rise in business levels, profitability ratios, dividends paid, market capitalization, earnings per share, net worth, and book value of the shares and so on. The expression of interest of foreign banks to expand operations in India, their strategic move to join collaborations, joint ventures, tie ups, correspondent relations etc with the Indian financial entities are also a reflection of soundness of stable governance policies. Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University.

Adoption of Corporate Governance practices in banks has begun to reflect changes in the style of governance and their growth pattern. Before we embark on further study of its role in banking system, a quick look at the pace of growth of banking sector will help us crystallize our views. The following sections will provide a snap shot of how the banks have broadly done in the recent years. These sections will also attempt quantification of performance of banks in the capital market which has a better correlation with the policy of corporate governance measures. Corporate governance in PSUs and banks for Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University.

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