| Credit rating agency Fitch Ratings has expressed concern on the corporate governance practices of family-controlled old generation private sector banks.
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| “These banks are often controlled by a few families, or communities, who may have non-bank interests,” the credit rating agency said in a statement.
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| Credit rating agencies continue to consider the quality of corporate governance an important factor in the overall credit rating process.
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| “While strong governance may well promote timely repayment, particularly weak corporate governance can adversely impact its financial well-being. Ratings are thus unlikely to be enhanced by the existence of sound governance practices, but the absence off such practices could have a negative effect on ratings,” the rating agency said.
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| The corporate governance standards are highest among the “new” private sector banks. These boards are reasonably broad-based, with independent directors that have wide-ranging experience and the various board committees such as compliance, audit, risk, compensation, are all reasonably vocal.
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| There are 28 state-owned banks operating in India, accounting for 79% of the total assets in the commercial banking system. Government ownership in these banks varies between 51% and 100%.
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| There has been an improvement in the practices of these banks with regards to disclosure - largely driven by these banks listing their equities on the domestic bourses, and the need to comply with disclosure and guidelines stipulated by the Stock Exchanges.
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| However, the board, which includes the executive Chairman and the “independent” directors, continue to be “nominated” by the Indian government. |
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