Bank of baroda

Corporate Governance
Adoption of good corporate governance practices has been getting the attention of banks as well as the regulators and
owners in India. Banks in India now typically have an audit committee of the board of directors, which is entrusted with

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the task of overseeing the organisation, operationalisation and quality control of the internal audit function, reviewing
financial accounts and follow-up with the statutory and external auditors of the bank as well as examinations by regulators.
Disclosure levels in bank balance sheets have been enhanced, while measures have also been initiated to strengthen
corporate governance in banks.
Consolidation
Indian banks are increasingly recognizing the importance of size. These efforts have received encouragement from the
views publicly expressed by the current Government favouring consolidation in the Indian banking sector. Although there
have been instances of mergers, these have usually involved financially distressed banks. Mergers and acquisitions are
seen by banks as a means of achieving inorganic growth in size and attaining economies of scale and scope.
Notwithstanding the government ownership of public sector banks, the government has indicated that it would not stand
in the way of mergers of public sector banks, provided the bank boards come up with a proposal of merger, based on
synergies and potential for improved operational efficiency. The Government has also provided tax breaks aimed at
promoting mergers and acquisitions (Section 72(A) of the I.T. Act enables the acquiring entity (which could be a company,
a corresponding new bank, a banking company or a specified bank) the benefit of “carry forward and set-off of accumulated
losses and unabsorbed depreciation” of the acquired entity, subject to specified conditions being fulfilled). Further, under
the Finance Act, 2005 a new Section 72AA has been incorporated into the I.T. Act pursuant to which, during the
amalgamation of a banking company with any other banking institution under a scheme sanctioned and brought into
force by the Central Government under Section 45 (7) of the Banking Regulation Act, the accumulated loss and the
unabsorbed depreciation of such banking company shall be deemed to be the loss or, as the case may be, allowance for
depreciation of such banking institution for the previous year in which the scheme of amalgamation was brought into
force and other provisions of the I.T. Act relating to the set-off and carry forward of loss, and allowance, for depreciation
shall apply accordingly. It is envisaged that the consolidation process in the public sector bank group is imminent,
particularly as banks will be required to attain higher capital standards under Basel II and meet the pressures of
competition by adoption of the extended universal banking model.

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