Disclosure and Transparency | RBI Grade B Phase 2 Preparation - Bank Exams PDF Download

 Page 1


 
 
142 
Corporate Governance 
in Banking 
UNIT 8 DISCLOSURE AND 
TRANSPARENCY 
Objectives 
The objectives of this unit are to: 
? explain “Disclosure and Transparency” (DT) as important tenets of good 
governance 
? understand the developments that lead to better disclosure standards and 
greater transparency 
? highlight the principles of disclosures 
? appreciate the present DT requirements of Indian banks. 
Structure 
8.1 Introduction 
8.2 Need for Disclosure &Transparency (DT)  
8.3 The Disclosure and Transparency Principles in Corporate Governance 
8.4 Basel Framework and Disclosures Requirement Update 
8.5 RBI guidelines on Basel III- Pillar 3- Disclosures– Market Discipline 
8.6 Evolution of Environment, Social and Governance Reporting in India 
8.7 Integrated Reporting (IR) 
8.8 Financial Reporting and its Role in Corporate Governance 
8.9 Summary 
8.10 Self-Assessment Questions  
8.11 References/Further Reading 
8.1 INTRODUCTION 
The essential elements of a good corporate governance framework are 
“transparency and disclosure,” as they supply a base for informed decision 
making by all the stakeholders in relation to financial performance 
monitoring, corporate transactions, and capital allocations. But the 
disclosures will be relevant and useful if made available on time to all 
concerned parties at the same time, and they are reliable. The prompt 
reporting to all concerned reduces the informational advantages to few 
insiders. In the recent past, transparency has gained importance in view of the 
challenges faced by many banks including HDFC bank in the digital arena, 
surprise weaknesses reported against Lakshmi Vikas Bank (LVB) and Yes 
Bank, as well as multiple issues of governance being reported in the press 
about National Securities Exchange (NSE).  
 
Page 2


 
 
142 
Corporate Governance 
in Banking 
UNIT 8 DISCLOSURE AND 
TRANSPARENCY 
Objectives 
The objectives of this unit are to: 
? explain “Disclosure and Transparency” (DT) as important tenets of good 
governance 
? understand the developments that lead to better disclosure standards and 
greater transparency 
? highlight the principles of disclosures 
? appreciate the present DT requirements of Indian banks. 
Structure 
8.1 Introduction 
8.2 Need for Disclosure &Transparency (DT)  
8.3 The Disclosure and Transparency Principles in Corporate Governance 
8.4 Basel Framework and Disclosures Requirement Update 
8.5 RBI guidelines on Basel III- Pillar 3- Disclosures– Market Discipline 
8.6 Evolution of Environment, Social and Governance Reporting in India 
8.7 Integrated Reporting (IR) 
8.8 Financial Reporting and its Role in Corporate Governance 
8.9 Summary 
8.10 Self-Assessment Questions  
8.11 References/Further Reading 
8.1 INTRODUCTION 
The essential elements of a good corporate governance framework are 
“transparency and disclosure,” as they supply a base for informed decision 
making by all the stakeholders in relation to financial performance 
monitoring, corporate transactions, and capital allocations. But the 
disclosures will be relevant and useful if made available on time to all 
concerned parties at the same time, and they are reliable. The prompt 
reporting to all concerned reduces the informational advantages to few 
insiders. In the recent past, transparency has gained importance in view of the 
challenges faced by many banks including HDFC bank in the digital arena, 
surprise weaknesses reported against Lakshmi Vikas Bank (LVB) and Yes 
Bank, as well as multiple issues of governance being reported in the press 
about National Securities Exchange (NSE).  
 
 
 
143 
Global Perspective: 
Basel Framework 
 
Disclosure and 
Transparency 
The governance standards are being reinforced from time to time, in view of 
the upheavals in the markets, greater movement of capital across the borders, 
emerging payment systems, increasing cyber-crimes and changing 
complexity of risks. Some of the concepts like, Integrated Reporting (IR), 
Business Responsibility and Sustainable Reporting (BRSR), and ESG 
(Environment, Social and Governance) framework and their implications 
have been deliberated later in this unit. 
The Governance in banks has increasingly become dynamic and complex in 
view of the global developments and guidelines issued by the various 
national and international agencies. The regulator, RBI is constantly 
monitoring the implementation process and the effectiveness of the 
disclosures. As such corporate governance has evolved and is continuously 
shaping to be more proactive rather than still being reactive. 
8.2 NEED FOR DISCLOSURE AND 
TRANSPARENCY (DT)  
A strong disclosure regime that promotes real transparency is a pivotal 
feature of market-based monitoring of companies and is central to 
shareholders’ ability to exercise their shareholder rights on an informed basis. 
 Experience shows that disclosure can be a powerful tool for influencing the 
behavior of companies and for protecting investors. A strong disclosure 
regime can help to attract capital and support confidence in the capital 
markets. By contrast, weak disclosure and non-transparent practices can 
contribute to unethical behavior and to a loss of market integrity. It will also 
lead to financial losses, not just to the company and its shareholders but also 
to the economy. Shareholders and potential investors require access to 
regular, reliable, and comparable information in sufficient detail for them to 
assess the stewardship of management, and make informed decisions about 
the valuation, ownership and voting. Lack of right information may hamper 
the ability of the markets to function, increase the cost of capital and result in 
a poor allocation of resources. 
The use of technology in disclosure reporting has become a highly effective 
tool for dissemination of the information. However, it has its own risks along 
with multiple risks banks do face in their operations. 
An example of a topical risk of direct relevance is cyber-risk. The banking 
system is increasingly reliant on information technology, which exposes it to 
a growing and evolving set of operational risks. One such example was seen 
with HDFC Bank which was well run, in terms of Corporate Governance. 
The Bank had to face certain embargos due to this cyber-risk which was 
lifted by RBI very recently. Banks with operationally resilient systems, staff, 
processes, and technology can better adapt to evolving shocks and support 
the provision of critical financial services. 
Page 3


 
 
142 
Corporate Governance 
in Banking 
UNIT 8 DISCLOSURE AND 
TRANSPARENCY 
Objectives 
The objectives of this unit are to: 
? explain “Disclosure and Transparency” (DT) as important tenets of good 
governance 
? understand the developments that lead to better disclosure standards and 
greater transparency 
? highlight the principles of disclosures 
? appreciate the present DT requirements of Indian banks. 
Structure 
8.1 Introduction 
8.2 Need for Disclosure &Transparency (DT)  
8.3 The Disclosure and Transparency Principles in Corporate Governance 
8.4 Basel Framework and Disclosures Requirement Update 
8.5 RBI guidelines on Basel III- Pillar 3- Disclosures– Market Discipline 
8.6 Evolution of Environment, Social and Governance Reporting in India 
8.7 Integrated Reporting (IR) 
8.8 Financial Reporting and its Role in Corporate Governance 
8.9 Summary 
8.10 Self-Assessment Questions  
8.11 References/Further Reading 
8.1 INTRODUCTION 
The essential elements of a good corporate governance framework are 
“transparency and disclosure,” as they supply a base for informed decision 
making by all the stakeholders in relation to financial performance 
monitoring, corporate transactions, and capital allocations. But the 
disclosures will be relevant and useful if made available on time to all 
concerned parties at the same time, and they are reliable. The prompt 
reporting to all concerned reduces the informational advantages to few 
insiders. In the recent past, transparency has gained importance in view of the 
challenges faced by many banks including HDFC bank in the digital arena, 
surprise weaknesses reported against Lakshmi Vikas Bank (LVB) and Yes 
Bank, as well as multiple issues of governance being reported in the press 
about National Securities Exchange (NSE).  
 
 
 
143 
Global Perspective: 
Basel Framework 
 
Disclosure and 
Transparency 
The governance standards are being reinforced from time to time, in view of 
the upheavals in the markets, greater movement of capital across the borders, 
emerging payment systems, increasing cyber-crimes and changing 
complexity of risks. Some of the concepts like, Integrated Reporting (IR), 
Business Responsibility and Sustainable Reporting (BRSR), and ESG 
(Environment, Social and Governance) framework and their implications 
have been deliberated later in this unit. 
The Governance in banks has increasingly become dynamic and complex in 
view of the global developments and guidelines issued by the various 
national and international agencies. The regulator, RBI is constantly 
monitoring the implementation process and the effectiveness of the 
disclosures. As such corporate governance has evolved and is continuously 
shaping to be more proactive rather than still being reactive. 
8.2 NEED FOR DISCLOSURE AND 
TRANSPARENCY (DT)  
A strong disclosure regime that promotes real transparency is a pivotal 
feature of market-based monitoring of companies and is central to 
shareholders’ ability to exercise their shareholder rights on an informed basis. 
 Experience shows that disclosure can be a powerful tool for influencing the 
behavior of companies and for protecting investors. A strong disclosure 
regime can help to attract capital and support confidence in the capital 
markets. By contrast, weak disclosure and non-transparent practices can 
contribute to unethical behavior and to a loss of market integrity. It will also 
lead to financial losses, not just to the company and its shareholders but also 
to the economy. Shareholders and potential investors require access to 
regular, reliable, and comparable information in sufficient detail for them to 
assess the stewardship of management, and make informed decisions about 
the valuation, ownership and voting. Lack of right information may hamper 
the ability of the markets to function, increase the cost of capital and result in 
a poor allocation of resources. 
The use of technology in disclosure reporting has become a highly effective 
tool for dissemination of the information. However, it has its own risks along 
with multiple risks banks do face in their operations. 
An example of a topical risk of direct relevance is cyber-risk. The banking 
system is increasingly reliant on information technology, which exposes it to 
a growing and evolving set of operational risks. One such example was seen 
with HDFC Bank which was well run, in terms of Corporate Governance. 
The Bank had to face certain embargos due to this cyber-risk which was 
lifted by RBI very recently. Banks with operationally resilient systems, staff, 
processes, and technology can better adapt to evolving shocks and support 
the provision of critical financial services. 
 
 
144 
Corporate Governance 
in Banking 
Good Corporate governance enhances the confidence level of stake holders, 
and in banks specifically the trust of the depositors, who supply most of the 
resources for their sustainable growth. This confidence/ trust level moving up 
can be seen in the growth of deposits, growth of advances and increase in 
profitability of the banks.  
Activity 1  
Explian the need for Disclosure and Transparancy in today’s changing times. 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
8.3 THE DISCLOSURE AND TRANSPARENCY 
PRINCIPLES IN CORPORATE 
GOVERNANCE (OECD 2015) 
Disclosure also helps in improving general understanding of the activities of 
banking companies, their policies, and performance with respect to 
environmental and ethical standards, and relationships of companies with that 
of the communities in which they operate. The Organization for Economic 
Co-operation and Development (OECD) Guidelines on Disclosure and 
Transparency are relevant for banking and financial institutions. 
A. Disclosure should include, but not be limited to, material information 
on:  
1) The financial and operating results of the company: 
Audited financial statements are the most widely used source of 
information on companies. They enable right monitoring to take place 
and help to value securities. Management’s discussion and analysis of 
operations is typically included in annual reports.This discussion is most 
useful when read in conjunction with the accompanying financial 
statements. Investors are particularly interested in information that may 
shed light on the future performance of the enterprise. 
Failures of governance can often be linked to the failure to disclose the 
“whole picture,” particularly where off-balance sheet items are used to 
provide guarantees or similar commitments between related companies. 
It is therefore important that transactions relating to an entire group of 
companies be disclosed in line with high quality internationally 
recognized standards and include information about contingent liabilities 
and off- balance sheet transactions, as well as special purpose entities. 
Page 4


 
 
142 
Corporate Governance 
in Banking 
UNIT 8 DISCLOSURE AND 
TRANSPARENCY 
Objectives 
The objectives of this unit are to: 
? explain “Disclosure and Transparency” (DT) as important tenets of good 
governance 
? understand the developments that lead to better disclosure standards and 
greater transparency 
? highlight the principles of disclosures 
? appreciate the present DT requirements of Indian banks. 
Structure 
8.1 Introduction 
8.2 Need for Disclosure &Transparency (DT)  
8.3 The Disclosure and Transparency Principles in Corporate Governance 
8.4 Basel Framework and Disclosures Requirement Update 
8.5 RBI guidelines on Basel III- Pillar 3- Disclosures– Market Discipline 
8.6 Evolution of Environment, Social and Governance Reporting in India 
8.7 Integrated Reporting (IR) 
8.8 Financial Reporting and its Role in Corporate Governance 
8.9 Summary 
8.10 Self-Assessment Questions  
8.11 References/Further Reading 
8.1 INTRODUCTION 
The essential elements of a good corporate governance framework are 
“transparency and disclosure,” as they supply a base for informed decision 
making by all the stakeholders in relation to financial performance 
monitoring, corporate transactions, and capital allocations. But the 
disclosures will be relevant and useful if made available on time to all 
concerned parties at the same time, and they are reliable. The prompt 
reporting to all concerned reduces the informational advantages to few 
insiders. In the recent past, transparency has gained importance in view of the 
challenges faced by many banks including HDFC bank in the digital arena, 
surprise weaknesses reported against Lakshmi Vikas Bank (LVB) and Yes 
Bank, as well as multiple issues of governance being reported in the press 
about National Securities Exchange (NSE).  
 
 
 
143 
Global Perspective: 
Basel Framework 
 
Disclosure and 
Transparency 
The governance standards are being reinforced from time to time, in view of 
the upheavals in the markets, greater movement of capital across the borders, 
emerging payment systems, increasing cyber-crimes and changing 
complexity of risks. Some of the concepts like, Integrated Reporting (IR), 
Business Responsibility and Sustainable Reporting (BRSR), and ESG 
(Environment, Social and Governance) framework and their implications 
have been deliberated later in this unit. 
The Governance in banks has increasingly become dynamic and complex in 
view of the global developments and guidelines issued by the various 
national and international agencies. The regulator, RBI is constantly 
monitoring the implementation process and the effectiveness of the 
disclosures. As such corporate governance has evolved and is continuously 
shaping to be more proactive rather than still being reactive. 
8.2 NEED FOR DISCLOSURE AND 
TRANSPARENCY (DT)  
A strong disclosure regime that promotes real transparency is a pivotal 
feature of market-based monitoring of companies and is central to 
shareholders’ ability to exercise their shareholder rights on an informed basis. 
 Experience shows that disclosure can be a powerful tool for influencing the 
behavior of companies and for protecting investors. A strong disclosure 
regime can help to attract capital and support confidence in the capital 
markets. By contrast, weak disclosure and non-transparent practices can 
contribute to unethical behavior and to a loss of market integrity. It will also 
lead to financial losses, not just to the company and its shareholders but also 
to the economy. Shareholders and potential investors require access to 
regular, reliable, and comparable information in sufficient detail for them to 
assess the stewardship of management, and make informed decisions about 
the valuation, ownership and voting. Lack of right information may hamper 
the ability of the markets to function, increase the cost of capital and result in 
a poor allocation of resources. 
The use of technology in disclosure reporting has become a highly effective 
tool for dissemination of the information. However, it has its own risks along 
with multiple risks banks do face in their operations. 
An example of a topical risk of direct relevance is cyber-risk. The banking 
system is increasingly reliant on information technology, which exposes it to 
a growing and evolving set of operational risks. One such example was seen 
with HDFC Bank which was well run, in terms of Corporate Governance. 
The Bank had to face certain embargos due to this cyber-risk which was 
lifted by RBI very recently. Banks with operationally resilient systems, staff, 
processes, and technology can better adapt to evolving shocks and support 
the provision of critical financial services. 
 
 
144 
Corporate Governance 
in Banking 
Good Corporate governance enhances the confidence level of stake holders, 
and in banks specifically the trust of the depositors, who supply most of the 
resources for their sustainable growth. This confidence/ trust level moving up 
can be seen in the growth of deposits, growth of advances and increase in 
profitability of the banks.  
Activity 1  
Explian the need for Disclosure and Transparancy in today’s changing times. 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
8.3 THE DISCLOSURE AND TRANSPARENCY 
PRINCIPLES IN CORPORATE 
GOVERNANCE (OECD 2015) 
Disclosure also helps in improving general understanding of the activities of 
banking companies, their policies, and performance with respect to 
environmental and ethical standards, and relationships of companies with that 
of the communities in which they operate. The Organization for Economic 
Co-operation and Development (OECD) Guidelines on Disclosure and 
Transparency are relevant for banking and financial institutions. 
A. Disclosure should include, but not be limited to, material information 
on:  
1) The financial and operating results of the company: 
Audited financial statements are the most widely used source of 
information on companies. They enable right monitoring to take place 
and help to value securities. Management’s discussion and analysis of 
operations is typically included in annual reports.This discussion is most 
useful when read in conjunction with the accompanying financial 
statements. Investors are particularly interested in information that may 
shed light on the future performance of the enterprise. 
Failures of governance can often be linked to the failure to disclose the 
“whole picture,” particularly where off-balance sheet items are used to 
provide guarantees or similar commitments between related companies. 
It is therefore important that transactions relating to an entire group of 
companies be disclosed in line with high quality internationally 
recognized standards and include information about contingent liabilities 
and off- balance sheet transactions, as well as special purpose entities. 
 
 
145 
Global Perspective: 
Basel Framework 
 
Disclosure and 
Transparency 
2) Company objectives and non-financial information: 
In addition to their commercial objectives, companies are encouraged to 
disclose policies and performance relating to business ethics, the 
environment and, where material to the company, social issues, human 
rights, and other public policy commitments. For example, RBI in its 
December 2007 Circular on non-financial reporting had said “It will be 
advisable for the banks/Financial Institutions to keep themselves abreast 
of the developments, on Corporate Social Responsibility, Sustainable 
Development and Non-Financial Reporting, on an on-going basis and 
dovetail/change their strategies/plans, etc. in the light of such 
developments. The progress made thereunder could be placed in the 
public domain along with the annual accounts of banks.”. Such 
information may be important for certain investors and other users of 
information to better evaluate the relationship between companies and 
the communities in which they operate and the steps that companies have 
taken to implement their objectives. 
3) Major share ownership, including beneficial owners, and voting rights: 
One of the basic rights of investors is to be informed about the 
ownership structure of the enterprise and their rights vis-à-vis the rights 
of other owners. The right to such information should also extend to 
information about the structure of a group of companies and intra-group 
relations. Such disclosures should make  the objectives, nature, and 
structure of the group transparent. Disclosure of ownership data should 
be provided once certain thresholds of ownership are passed. Such 
disclosure might include data on major shareholders and others that, 
directly or indirectly, significantly influence or control or may 
significantly influence or control the company through, for example, 
special voting rights, shareholder agreements, the ownership of 
controlling or large blocks of shares, significant cross shareholding 
relationships and cross guarantees. It is also good practice to disclose 
shareholdings of directors, including non-executives. 
One such example is of IndusInd Bank, whose major shareholding was 
in the hands of Hinduja group and other NRI shareholders. The control 
exercised by these promotors was primarily for the sustainable growth of 
the Bank supported by their experience of global best practices. The 
testimony was seen in their publishing of the CSR report in 2008, 
responding to the RBI direction, which very few banks could do at that 
point of time. 
4) Remuneration of members of the board and key executives: 
Information about board and executive remuneration is of concern to 
shareholders. Of particular interest is the link between remuneration and 
long-term company performance. Companies are expected to disclose 
information on the remuneration of board members and key executives 
Page 5


 
 
142 
Corporate Governance 
in Banking 
UNIT 8 DISCLOSURE AND 
TRANSPARENCY 
Objectives 
The objectives of this unit are to: 
? explain “Disclosure and Transparency” (DT) as important tenets of good 
governance 
? understand the developments that lead to better disclosure standards and 
greater transparency 
? highlight the principles of disclosures 
? appreciate the present DT requirements of Indian banks. 
Structure 
8.1 Introduction 
8.2 Need for Disclosure &Transparency (DT)  
8.3 The Disclosure and Transparency Principles in Corporate Governance 
8.4 Basel Framework and Disclosures Requirement Update 
8.5 RBI guidelines on Basel III- Pillar 3- Disclosures– Market Discipline 
8.6 Evolution of Environment, Social and Governance Reporting in India 
8.7 Integrated Reporting (IR) 
8.8 Financial Reporting and its Role in Corporate Governance 
8.9 Summary 
8.10 Self-Assessment Questions  
8.11 References/Further Reading 
8.1 INTRODUCTION 
The essential elements of a good corporate governance framework are 
“transparency and disclosure,” as they supply a base for informed decision 
making by all the stakeholders in relation to financial performance 
monitoring, corporate transactions, and capital allocations. But the 
disclosures will be relevant and useful if made available on time to all 
concerned parties at the same time, and they are reliable. The prompt 
reporting to all concerned reduces the informational advantages to few 
insiders. In the recent past, transparency has gained importance in view of the 
challenges faced by many banks including HDFC bank in the digital arena, 
surprise weaknesses reported against Lakshmi Vikas Bank (LVB) and Yes 
Bank, as well as multiple issues of governance being reported in the press 
about National Securities Exchange (NSE).  
 
 
 
143 
Global Perspective: 
Basel Framework 
 
Disclosure and 
Transparency 
The governance standards are being reinforced from time to time, in view of 
the upheavals in the markets, greater movement of capital across the borders, 
emerging payment systems, increasing cyber-crimes and changing 
complexity of risks. Some of the concepts like, Integrated Reporting (IR), 
Business Responsibility and Sustainable Reporting (BRSR), and ESG 
(Environment, Social and Governance) framework and their implications 
have been deliberated later in this unit. 
The Governance in banks has increasingly become dynamic and complex in 
view of the global developments and guidelines issued by the various 
national and international agencies. The regulator, RBI is constantly 
monitoring the implementation process and the effectiveness of the 
disclosures. As such corporate governance has evolved and is continuously 
shaping to be more proactive rather than still being reactive. 
8.2 NEED FOR DISCLOSURE AND 
TRANSPARENCY (DT)  
A strong disclosure regime that promotes real transparency is a pivotal 
feature of market-based monitoring of companies and is central to 
shareholders’ ability to exercise their shareholder rights on an informed basis. 
 Experience shows that disclosure can be a powerful tool for influencing the 
behavior of companies and for protecting investors. A strong disclosure 
regime can help to attract capital and support confidence in the capital 
markets. By contrast, weak disclosure and non-transparent practices can 
contribute to unethical behavior and to a loss of market integrity. It will also 
lead to financial losses, not just to the company and its shareholders but also 
to the economy. Shareholders and potential investors require access to 
regular, reliable, and comparable information in sufficient detail for them to 
assess the stewardship of management, and make informed decisions about 
the valuation, ownership and voting. Lack of right information may hamper 
the ability of the markets to function, increase the cost of capital and result in 
a poor allocation of resources. 
The use of technology in disclosure reporting has become a highly effective 
tool for dissemination of the information. However, it has its own risks along 
with multiple risks banks do face in their operations. 
An example of a topical risk of direct relevance is cyber-risk. The banking 
system is increasingly reliant on information technology, which exposes it to 
a growing and evolving set of operational risks. One such example was seen 
with HDFC Bank which was well run, in terms of Corporate Governance. 
The Bank had to face certain embargos due to this cyber-risk which was 
lifted by RBI very recently. Banks with operationally resilient systems, staff, 
processes, and technology can better adapt to evolving shocks and support 
the provision of critical financial services. 
 
 
144 
Corporate Governance 
in Banking 
Good Corporate governance enhances the confidence level of stake holders, 
and in banks specifically the trust of the depositors, who supply most of the 
resources for their sustainable growth. This confidence/ trust level moving up 
can be seen in the growth of deposits, growth of advances and increase in 
profitability of the banks.  
Activity 1  
Explian the need for Disclosure and Transparancy in today’s changing times. 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
8.3 THE DISCLOSURE AND TRANSPARENCY 
PRINCIPLES IN CORPORATE 
GOVERNANCE (OECD 2015) 
Disclosure also helps in improving general understanding of the activities of 
banking companies, their policies, and performance with respect to 
environmental and ethical standards, and relationships of companies with that 
of the communities in which they operate. The Organization for Economic 
Co-operation and Development (OECD) Guidelines on Disclosure and 
Transparency are relevant for banking and financial institutions. 
A. Disclosure should include, but not be limited to, material information 
on:  
1) The financial and operating results of the company: 
Audited financial statements are the most widely used source of 
information on companies. They enable right monitoring to take place 
and help to value securities. Management’s discussion and analysis of 
operations is typically included in annual reports.This discussion is most 
useful when read in conjunction with the accompanying financial 
statements. Investors are particularly interested in information that may 
shed light on the future performance of the enterprise. 
Failures of governance can often be linked to the failure to disclose the 
“whole picture,” particularly where off-balance sheet items are used to 
provide guarantees or similar commitments between related companies. 
It is therefore important that transactions relating to an entire group of 
companies be disclosed in line with high quality internationally 
recognized standards and include information about contingent liabilities 
and off- balance sheet transactions, as well as special purpose entities. 
 
 
145 
Global Perspective: 
Basel Framework 
 
Disclosure and 
Transparency 
2) Company objectives and non-financial information: 
In addition to their commercial objectives, companies are encouraged to 
disclose policies and performance relating to business ethics, the 
environment and, where material to the company, social issues, human 
rights, and other public policy commitments. For example, RBI in its 
December 2007 Circular on non-financial reporting had said “It will be 
advisable for the banks/Financial Institutions to keep themselves abreast 
of the developments, on Corporate Social Responsibility, Sustainable 
Development and Non-Financial Reporting, on an on-going basis and 
dovetail/change their strategies/plans, etc. in the light of such 
developments. The progress made thereunder could be placed in the 
public domain along with the annual accounts of banks.”. Such 
information may be important for certain investors and other users of 
information to better evaluate the relationship between companies and 
the communities in which they operate and the steps that companies have 
taken to implement their objectives. 
3) Major share ownership, including beneficial owners, and voting rights: 
One of the basic rights of investors is to be informed about the 
ownership structure of the enterprise and their rights vis-à-vis the rights 
of other owners. The right to such information should also extend to 
information about the structure of a group of companies and intra-group 
relations. Such disclosures should make  the objectives, nature, and 
structure of the group transparent. Disclosure of ownership data should 
be provided once certain thresholds of ownership are passed. Such 
disclosure might include data on major shareholders and others that, 
directly or indirectly, significantly influence or control or may 
significantly influence or control the company through, for example, 
special voting rights, shareholder agreements, the ownership of 
controlling or large blocks of shares, significant cross shareholding 
relationships and cross guarantees. It is also good practice to disclose 
shareholdings of directors, including non-executives. 
One such example is of IndusInd Bank, whose major shareholding was 
in the hands of Hinduja group and other NRI shareholders. The control 
exercised by these promotors was primarily for the sustainable growth of 
the Bank supported by their experience of global best practices. The 
testimony was seen in their publishing of the CSR report in 2008, 
responding to the RBI direction, which very few banks could do at that 
point of time. 
4) Remuneration of members of the board and key executives: 
Information about board and executive remuneration is of concern to 
shareholders. Of particular interest is the link between remuneration and 
long-term company performance. Companies are expected to disclose 
information on the remuneration of board members and key executives 
 
 
146 
Corporate Governance 
in Banking 
so that investors can assess the costs and benefits of remuneration plans 
and the contribution of incentive schemes, such as stock option schemes, 
to company performance. Disclosure on an individual basis (including 
termination and retirement provisions) is increasingly regarded as good 
practice.  
5) Board member qualifications, eligibility and other relevant details: 
General information about board members including their selection 
process is of relevance. Investors require information on individual board 
members and key executives to evaluate their experience and 
qualifications and assess any potential conflicts of interest that might 
affect their judgement. For board members, the information should 
include their qualifications, share ownership in the company, 
membership of other boards, other executive positions, and whether they 
are considered by the board to be an independent member. 
6) Related party transactions: 
Related Party Disclosures are specified by Accounting Standard (AS) 18 
and defined under Companies Act 2013. It includes close family 
members of directors or key managerial personnel, a private company in 
which directors or key managerial personnel plus their relatives have 
control or considerable influence. The OECD guidelines are laid down to 
ensure that the company is being run with due regard to the interests of 
all its investors, it is essential to fully disclose all material related party 
transactions and the terms of such transactions to the market 
individually. Related parties should at least include entities that control 
or are under common control with the company, significant shareholders 
including members of their families and key management personnel. 
While the definition of related parties in internationally accepted 
accounting standards provides a useful reference, the corporate 
governance framework should ensure that all related parties are properly 
identified and that in cases where specific interests of related parties are 
present, material transactions with consolidated subsidiaries are also 
disclosed. 
7) Foreseeable risk factors: 
Users of financial information and market participants need information 
on foreseeable material risks that may include risks that are specific to 
the industry or the geographical areas in which the company operates; 
dependence on commodities; financial market risks including interest 
rate risk, credit risk, risk related to derivatives and off-balance sheet 
transactions; business conduct risks; and risks related to the environment. 
For example, when the interest rates are going down, the profitability of 
the banks go up. This is due to the long-term advances getting supported