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CHAPTER V

BOARD CULTURE IN INDIAN OVERSEAS BANK

Introduction:

“Corporate Governance system is based on certain institutions like laws, contracts norms

and regulations that create self-governing system in the organization. This compliance-

oriented programme has become the central element of today’s competitive corporate

governance procedures and make the management responsible to the shareholders/owners

and other stakeholders. In a good corporate governance system, managers take decisions

by making the process very transparent, digestible and conducive to direct the resources

in which they ensure the accountability ,accuracy, timeless and use the powers

effectively in an accountable way. Corporate governance comprehends the structure of

relationship and corresponding responsibilities among the core group consisting of

shareholders , board members and corporate managers designed to foster the competitive

that is required to achieve the bank’s primary objectives” 1

In order to exercise the good corporate governance business managers have to be trained.

The executives, directors and others at the helm of affairs should hold strong ethical and

moral background. They must be ethically and socially responsible to act upon the codes

of corporate governance and through their exercises they should develop a culture of

good governance in the organizations. The managers with high ethics and moral spirit can

lead the employees of the bank successfully.

A board that regularly and routinely assesses performance of the organization,

both of itself and the members can definitely minimize problems rather than facing them

at large.

This chapter focuses on how the Board practices under a well-laid out system

which leads to the building of a legal, commercial and institutional framework and

demarcates the boundaries within which these function are performed. It complies with

the legal and regulatory requirements apart from meeting environmental and community

needs.

1 The ICFAI Journal of Corporate Governance April 2006. P- 190

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LEGAL FRAMEWORK OF INDIAN OVERSEAS BANK

The Bank is governed by separate statutes such as :

• The Banking regulation Act, 1949 which is applicable to all banks.

• The company Law of 1949.

• Nationalised banks under the Banking Companies(Acquisition and Transfer Act,

1970/1980)and

• Clause 49 of Securities Exchange Board of India.

CONSTITUTION OF THE BOARD

The above statutes governing Indian Overseas Bank provide for the constitution

of the Board of Directors including the Chairman and managing directors, audit of

books and accounts ,appointment of auditors, disclosures etc., The Board of directors

of the bank have special knowledge and practical exposure in the areas of

accountancy, agriculture and rural economics, economics, finance, law, small scale

industry etc.

The Banking Companies Acquisition and Transfer Act of 1970/1980 provide for any

explicit representation from the above mentioned sectors as directors nominated to

the Boards of nationalized bank by the Central Government and the shareholders shall

have practical experience in respect of one or more of the above fields.

The Nationalization Acts vest powers with the Central Government to appoint the

Chairman and Managing directors of the bank in consultation with the Reserve Bank

of India.

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COMPOSITION OF THE BOARD

Section 9 (3)(i) of the banking companies Acquisition and Transfer of

undertakings Act, 1970 applies. As per this section Indian Overseas Bank has

complied with all the rules. The Business of the bank is vested with the Board of

Directors. The Chairman cum Managing Director and Executive Directors function

under the superintendence, direction and control of the Board. The strength as on

31.3.08 is thirteen directors comprising three whole-time Directors and ten non

executive Directors, who include three directors elected by the shareholders to duly

represent their interest.

This clearly reveals that the Bank has more than thirty two percent of the total

paid up capital to have three directors on the board elected by the share holders other

than the Central Government.

It is also provided that on the assumption of charges after election of any such

director under this clause, equal number of directors nominated under clause(h) shall

retire in such manner as may be specified in the scheme.

The directors so elected by the shareholders of the bank under clause (i) of

subsection (3) have special knowledge in various fields as per the RBI Rules. They

also represent the interests of depositors or represent the interest of farmers, workers

and artisans.

It is also declared that none of the directors are related to each other or related to

any of the employee of the bank.

The Board has adopted a code of conduct for Directors and all the General

Managers including the field General Managers and a declaration has been obtained

from the Chairman cum Managing Director conforming their compliance to the code

of conduct.

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The Deputy General Manager, a qualified company secretary attached to

Board Services department, is also the secretary to the Board, in accordance with the

recommendations of the Dr. Ganguly committee.

Section 9 (3AAA) states that without prejudice to the provisions of sub-

section (3A) and not withstanding anything to the contrary contained in this Act or in

any other law for the time being in force no person shall be eligible to be elected as a

director under clause (i) of sub-section(3) unless he is a person having fit and proper

status based upon track record, integrity and such other criteria as the Reserve Bank

may notify from time to time in this regard.

The Reserve Bank may also specify in the notification issued under Sub-

section(3AA), The authority to determine the fit and proper status, the manner of such

determination, procedure to be followed for such determination and such other

matters as may be considered necessary or incidental thereto according to section

9(3AB)

ADHERENCE TO FIDELITY AND SECRECY

Section 13(2) : Every director, member of a local board or a committee or

auditor, advisor, officer or other employee of a corresponding new bank shall before

entering upon his duties makes a declaration of fidelity and secrecy.

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CORPORATE MANAGEMENT STRUCTURE

Share holders

|

Elect

|

Board of Directors ----forms--------|

| Executive Committee

Appoints

|

Chief executives and Senior Executives

The Chief executives serve as a link between the board of directors on one side

and the operating organization on the other. Their work consists of interpreting the

policy decisions for the benefit of those responsible for their execution and in dealing

with the day-to-day problems of business operation. They also place important

problems concerning the execution of the work assigned to them before the board

and air their views on issues involved in implementing policies. The CEOs who

include managing directors and managers receive instructions from the Board and

disseminate them to executives in charge of various department. The shareholders

delegate the greater part of their authority as owners to the Board which in turn,

passes a substantial part of power to CEOs and they further delegate powers to

departmental heads in charge of operation.

NEW STEPS OF DIRECTOR SEARCH

Even before Sarbanes-Oxley, 75% of companies had nominating committees. Yet

it wasn’t necessarily an integral part of the director recruiting process. In the process the

CEOs often took the responsibility for choosing new directors even if a nominating

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committees existed. The independent nominating committees drive the process today. A

generic director search is outlined in the following ten steps:

Design a selection process and communicate it to all involved parties.

Assess the Board’s needs.

Develop a director specification.

Decide whether to hire an executive search firm.

Create a list of Board prospects.

Review the long list for any kind of potential conflicts.

Narrow the long list to a short list.

Make a short list on the research prospects.

Design and conduct a thorough interview process and

Extend an offer.

TERMS OF APPOINTMENT OF CHAIRMAN AND MANAGING DIRECTOR

In exercise of the powers conferred by clause (a) of sub-section(3) of 9.

of the Banking companies (Acquisition and Transfer of undertakings) Act 1970, read

with subclause(1) of clause 3, clause 6, clause7 and subclause(1) of clause 8 of the

Nationalized banks(Management and Miscellaneous Provisions) scheme 1970, the

Central Government, after consultation with the Reserve Bank of India, appointed Mr.

T.S. Narayanasami, as Chairman and Managing Director of the Bank upto 31.5.09 vide

notification number F.No.20/17/2000 GOI dated 11th july 2005.

TERMS OF APPOINTMENT OF WHOLE TIME DIRECTORS

In exercise of the powers conferred under section 9 of the Banking companies

(Acquisition and Transfer of undertakings) Act 1970, the Central Government, after

consultation with the Reserve Bank of India, appointed shri. S.A. Bhat and shri.

Narayanan as whole time director (designated as Executive Director) of the Bank on

4.6.07 and 7.11.07 respectively.

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PAYMENT OR BENEFIT TO THE DIRECTORS AND OFFICERS OF THE

BANK

Except the benefits as provided under the relevant rules framed by the

Government of India from time to time the Directors of the bank are not eligible to any

additional benefits upon termination of employment. The key managerial personnel are

entitled to the compensation and benefits as applicable to all the permanent employees of

the Bank. All the key managerial personnel, except the Chairman cum Managing

Director and Executive Director, are of the grade of the General Manager and a little

higher .The other benefit includes the festival loan, housing loan, reimbursement of

certain expenses etc., as per employees service rules.

CLAUSE 9 : TERM OF OFFICE OF THE ELECTED DIRECTORS

As per the Nationalized Banks(Management and miscellaneous provisions)

Scheme, 1970 the Director shall hold office for three years and shall be eligible for re-

election. Provided that no such director shall hold office continuously for a period more

than six years.

QUALIFICATIONS OF DIRECTORS

To be appointed as a Director of a bank the required qualifications are, he must be

an individual, competent to enter into a contract and hold a share qualification if so

required by the Articles of association. As there are some qualifications there are also

some disqualifications.

THE FOLLOWING PERSONS ARE DISQUALIFIED FOR APPOINTMENT AS

DIRECTOR AS PER CLAUSE 10

Unsound mind, undischarged insolvency, conviction by a court for immorality,

areas in the payment of share, fraud and misfeasance are the disqualifications for the

appointment of Directors. The directors can be removed by the share holders, the Central

Government and the Company Law Board.

157

CLAUSE 11 : VACATION OF OFFICE OF DIRECTOR ETC.

If a director becomes subject to any of the disqualifications as specified in clause

10 or is absent without leave of the Board for more than 3 consecutive meetings, he shall

be deemed to have vacated his office as such and there upon his office shall become

vacant.

The Chairman or a Whole time Director including the Managing Director or a

Director may resign his office by giving notice thereof in writing to the Central

Government and on such resignation being accepted by that Government shall be deemed

to have vacated his office; any other director may resign his office by giving notice in

writing to the Central Government and such resignation shall take effect on the receipt of

the communication of the resignation by the central Government.

The office of a Director shall become vacant as soon as the Director ceases to be a

workman or an employee of a nationalized bank of which he is a Director.

Where any vacancy occurs in the office of a Director, other than an elected

Director, it shall be filled in accordance with subsection(3) of section 9 of the act.

CLAUSE 11A : REMOVAL FROM OFFICE OF AN ELECTED DIRECTOR

The Bank shareholders, other than the Central Government, may by a resolution

passed by majority of the votes of such shareholders holding in the aggregate, not less

than one half of the share capital held by all such shareholders remove any director

elected under clause(i) of subsection(3) of section 9 and elect in his place another person

to fill the vacancy.

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CLAUSE 11 B. FILLING OF VACANCY IN THE OFFICE OF AN ELECTED

DIRECTOR

Where any vacancy occurs before the expiry of the term of office of an elected

Director, the vacancy shall be filled in by election.

Provided that where the duration of vacancy is likely to be less than 6 months, the

vacancy may be filled in by the remaining directors.

A person elected or co-opted as the case may be, under sub-clause(1) shall hold

office for the unexpired portion of the term of his predecessor.

REMUNERATION OF DIRECTORS

In the wake of several corporate failures, excessive and disproportionately large

payments to directors have almost become a scandal. It has also become one of the most

visible and politically sensitive issues of corporate governance. Their compensation

plans include basic salary, excluding performance linked incentive perquisites as per the

Government of India guidelines such as housing Leave Travel Allowance, Contribution

to provident Fund, Gratuity, Superannuation and Reimbursement of medical expenses .

The Directors are not interested in any loan or advance given by the Indian

Overseas Bank to any person(s) or company (ies) nor are any beneficiary of such loan or

advance related to any of the directors of the bank.

Indian Overseas Bank does not pay any remuneration to other Directors except

sitting fees as per directives of Central Government. The remuneration Committee, a

sub-committee of .the Board of Directors, has been constituted for evaluating the

performance in terms of government guidelines and to recommend payment of

performance –linked incentives to the whole-time Directors of the bank, as per the terms

of Government of India, Ministry of Finance [Banking Division] letter F.No.21/1/2005.

159

OTHER REMUNERATION PACKAGES

Apart from salary package, large amounts are allocated to those Directors who

shoulder great responsibilities such as chairperson and members of committees.

Shareholders approval is necessary for fixing the remuneration packages of non-

executive directors.

TABLE 5.1

NUMBER OF COMPLAINTS RECEIVED, RESOLVED AND PENDING DURING THE YEAR 2004-2008

Complaints 2003-04 2004-05 2005-06 2006-07 2007-08

0 / Balance -- --- 7 13 3

Received 11,613 340 3761 2089 1328

Redressed 11,590 333 3755 2099 1329

Pending 23 7 13 3 2

Source: Annual Report It is learnt from the table that the bank has solved 99% of all the complaints

received. Receiving complaints from stakeholders is a natural phenomenon. It clearly

indicates that pending number of complaints is very meager which could not be solved

due to time constraints. But due consideration is given to those pending complaints in the

next year and has redressed almost all the complaints. This shows that it gives atmost

importance to labour and employee welfare, shareholders creditors, etc. by having a

grievance redressal committee which is headed by Mr.Sundar Rajan,Board secretary.

In terms of clause 47 (f) if the listing agree Indian Overseas Bank had advised the

shareholders that an exclusive e-mail ID has been allotted and the company secretary

takes up the task of the registration and redressal of the complaints by investors. They

have displayed this e-mail ID and other relevant details prominently on this website and

the same is incorporated in the various materials / pamphlets / advertisement campaigns

initiated by them.

160

Other committees constituted by Indian Overseas Bank are Asset Liability

Management committee, Investment Review committee, Top Management Committee

comprising Chairman cum Managing Director, Executive Director and General Managers

along with Department Executives which have been constituted for the day to day

functioning review and monitoring of various aspects of business.

Hence there will be occasions, when an investor has a grievance against the

company in which one is a stakeholder. One would first approach the bank in that regard,

one may not be satisfied with the company’s response and would like to know when he

should turn up to get his grievances redressed. Stock exchanges have set up many centers

in this regard. The other two avenues always available to the investor to seek redressal of

his complaints are: (i) complaints with Consumers Disputes Redressal Forums and (ii)

Suits in a court of law.

When an investor has a complaint and feels that his interest as an investor has not

been protected, he should approach the company / bank concerned. If he is not satisfied

with their response, the investor can approach Securities Exchange Board of India.

Securities Exchange Board of India has instituted a Redressal Mechanism.

TABLE 5.2

GRIEVANCE REDRESSAL MECHANISM

Type Nature of grievance Can be taken up with

I Issues related to non receipt of

refund order, allotment advice

cancelled stock invests.

Investors Grievance and

Guidance Division (IGG)

II Issues related to Non-receipt of

dividends

Investors Grievance and

Guidance Division (IGG)

III Shares related – i.e., non receipt of

share certificates

Investors Grievance and

Guidance Division (IGG)

IV Issued related to Debentures Investors Grievance and

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Guidance Division (IGG)

V Non receipt of letter offer of rights

and interest on delayed payments

and refund orders

Investors Grievance and

Guidance Division (IGG)

Source: Corporate Governance by Prof. A.C. Fernando, First edition Dorling Kindersley

(India) Pvt., Ltd., P.153.

The above table describes the nature of grievances and the related department

which handles such grievances. It is likely that there may be complaints that may be

sometimes beyond the purview and jurisdiction of SEBI. There may be many problems

arising due to corporate misgovernance. To solve such problems Securities Exchange

Board of India has provided a Comprehensive mechanism to protect the investors within

the purview of the Companies Act and Listing agreements.

TABLE 5.3

NATURE OF BUSINESS TRANSACTED BY THE BOARD

Rank

Discussion of financial results 1

Strategy planning 2

Discussion on day to day operation 3

Managerial succession RBI relations 4

Government relations 5

Shareholders’ relations 6

Labour relations 7

This table shows that the discussion of financial results’ draws the attention of the

most of the directors. The general response to the labour relations is minimum, since it is

taken up by the Indian Overseas Bank Association members.

162

The day to-day performance of the bank is critically evaluated in the board

meeting. Review function is the most prominent function in Indian Boards. A review

function does not end with the review. A normal board will review its performance also.

ASSESSING BOARD PERFORMANCE

BOARD MEETING

The individual directors do not have any authority in their individual capacity. It is an

executive body. It can exercise the authority only collectively. Therefore, the

discussions of the Board are taken only in the Board meeting. Therefore the Board

meeting is the vehicle through which the functions of the board are carried out. The

importance given to the Board meeting by the bank also reflects the importance given by

the management to the Board. It also reflects the efficiency of the organ viz; board. As

per section 285 of the companies’ act 1956, a board meeting must be held atleast once in

every three calendar months, and atleast four such meetings must be held in every year.

It has been clarified by the Department of company affairs that so long as four Board

meetings are held in a calendar year, one in each quarter, the interval between two

meetings of the Board may be more than three months. The performance of the board

can be evaluated with the help of a number of attributes of the board meeting. The

ensuing paragraphs are devoted to evaluate the board meeting process.

NOTICE

Section 286 of the companies act, 1956 holds that notice of every meeting of the

Board of Directors of a company must be given in writing to every director for the time

being in India and at the usual address in India. However, the act does not prescribe any

form of notice or the mode of service of notice of board meetings. Fourteen to twenty

one days notice is served for the annual general meeting. We can infer from this that the

board meeting will be effective as sufficient notice has been given for the members.

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AGENDA

Agenda for any meeting is a must if the meeting is to be purposeful and effective.

There is no statutory compulsion to send agenda along with the notice of the meeting.

However a meeting is convened to transact business. If the members of the board are not

informed about the purpose for which they are going to assemble, the members cannot

effectively contribute to the purpose for which they are assembling together. Therefore

one can decide whether the board is effective or not on the basis of this factor also.

Hence the researcher during an interview with one of the employees of Indian Overseas

Bank asked whether agenda is sent along with notice. The reply was in the affirmative.

VENUE

It is the top most organ of the management. It should have a separate venue. If

there is no separate venue in the bank for the conduct of the board meeting, it speaks how

well the management considers the board. The usual venues for the General Body

meetings are Chennai, Delhi, Pune, Mumbai, Goa and Kumarakom. In Chennai the usual

venues are Rani Seethai Hall, Chennai – 6, Narada Gana Sabha, Chennai – 18, and also in

the central office. A separate hall is available in the central office exclusively for the

Board meeting.

ATTENDANCE

One of the most important attributes to evaluate the board room performance is

the director’s attendance for the board meeting. The Directors are the representatives of

the shareholders. They are responsible for the management of the affairs of the company.

The directors make the decisions through the meetings only such meetings of the

directors are known as Board meeting.

One of the factors for judging the direct participation and involvement is regular

attendance in the board meeting or annual general meeting or anyother committee

meeting in which the director is a member. If a board member fails to attend frequently,

his views cannot be heard. So the companies act is also serious regarding the attendance.

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Though the listing agreement compels a company to inform the stock exchanges

the date of the board meeting and the purpose of the meeting, the attendance record is

still a confidential record.

The researcher hereby provides the details regarding the number of meetings of

board conducted and average attendance for the board meeting for a period of 5 years.

TABLE 5.4

DETAILS OF BOARD MEETINGS CONDUCTED AND DETAILS OF ATTENDANCE

Year No.of Board meeting

conduced

Percentage of

average attendance

2003-04 7 99%

2004-05 7 99%

2005-06 6 98%

2006-07 7 98%

2007-08 6 99%

Source: Annual Report

The above table discloses the number of board meetings conducted and the

percentage of average attendance. All the Board members participate with enthusiasm to

know the happenings of day to day affairs. It is only during these meetings important

decisions and resolutions are passed. The Bank organizes these meetings at regular

intervals especially once in two months to discuss important issues. All these meetings

are formal meetings organized with the issuance of due notice along with the agenda. As

agenda is sent along with the notice, the members understand the significance of the

meeting and the attendance record is highly appreciable. This makes the meeting

purposeful and effective.

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THE DURATION

Another factor which can be used to evaluate the performance of the Board

meeting is the duration. Longer the time devoted, more will be the effectiveness of the

board meeting and vice- versa. Usually Indian Overseas Bank’s board meeting is held

for three hours and more to discuss matters relating to policy guidelines and decision

making.

MINUTES OF THE BOARD MEETING

Every bank is required to maintain the minutes of proceedings of every board

meeting. There are three types of minutes, viz, ‘minutes of Resolutions’, ‘minutes of

Narration’, and ‘minutes of both’. Indian Overseas Bank maintains all types of the

minutes which are a documentary evidence and also accepted as legal evidence.

ANNUAL GENERAL MEETING

An attendance record of the annual general meeting is more transparent.

Moreover annual general meeting is the vehicle through which directors are elected and

inducted in the board. Though there is no legal compulsion the Directors have moral duty

to attend the annual general meeting. In cases where they are unable to attend the meeting

they may either appoint the proxy or an authorized representative.

APPOINTMENT OF THE PROXY

A shareholder eligible to attend and vote, is entitled to appoint a proxy to

attend and vote instead of himself/herself and such proxy need not be a

shareholder of Indian Overseas Bank. The instrument appointing proxy should

however be deposited at the Central Office of the bank not less than four days

before the date fixed for the meeting.

APPOINTMENT OF AN AUTHORIZED REPRESENTATIVE

No person shall be entitled to attend or vote at any meeting of the

shareholders of Indian Overseas Bank as the duly authorized representative

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without a copy of the resolution appointing him as a duly authorized

representative, certified to be a true copy by the chairman of the meeting at which

it was passed, and has been deposited at the central office of the Bank not less than

four days before the data fixed for the meeting.

No officer or employee of the Bank shall be appointed as Authorized

Representative or proxy of a shareholder. In pursuant to, SEBI (delisting of

securities) Guidelines, 2003 any resolution is required to be approved by three-

fourths majority of those shareholders present and voting at the meeting.

GENERAL BODY MEETINGS

TABLE 5.5

LOCATION AND TIME WHERE LAST THREE GENERAL BODY

MEETINGS WERE HELD

S.No Nature of Meeting

Date, Day and time of meeting

Venue

1 3rd AGM 18.07.03 Friday 10.00 a.m

Rani Seethai Hall, 603, Anna Salai, Chennai – 6

2 4th AGM 31.07.04 Saturday 11.00 a.m

Rani Seethai Hall, 603, Anna Salai, Chennai – 6

3 5th AGM 17.06.05 Friday 10.15 a.m

Rani Seethai Hall, 603, Anna Salai, Chennai – 6

4 6th AGM

16.06.2006 Friday 10.15 a.m

Rani Seethai Hall, 603, Anna Salai, Chennai – 6

5 7th AGM

12.06.2007 Tuesday 10.00 a.m

Narada Gana Sabha 314 TTK Road, Chennai - 18

6 8th AGM 14.06.2008 Saturday 11.00 a.m

Narada Gana Sabha 314 TTK Road, Chennai - 18

Source : Annual Report

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The above table reveals that Indian Overseas Bank conducts all the

General Body meetings in only two venues namely Narada Gana Sabha and Rani

Seethai Hall. since it is the Provision under the Companies Act, that all meetings

should be conducted in the venue close to its registered office to enable all the

shareholders participate in the meetings.

TABLE 5.6

DETAILS OF ANNUAL GENERAL MEETING

S.

No

2003-04 2004-05 2005-06 2006-07 2007-08

1 Total No.of directors present 16 15 18 15 11

2 Total No. of shareholders

present

1651 2138 N.A N.A 839

3 Total No. of Proxies received 19 89 N.A N.A 50

4 Total No. of Proxies in order - - N.A N.A 44

5 Total No. of Proxies who

attended the meeting

- - N.A N.A 3

6 Total No. of letters nominating

the authorized representative

3 3 N.A N.A 25

Source: Annual Report N.A-Not Available

In 2003, 2004-2005 all the General Body Meetings of shareholders were

duly attended by a representative nominated by Ministry of Finance, Government

of India representing their shareholding. No special resolutions were passed in all

the Annual General Meetings from 2005. Indian Overseas Bank has not

introduced the postal ballot system. The total number of shareholders present

shows an increase in 2004-05. This shows that there is active participation of

shareholders in Annual General Meeting and is considered as a strength for

assessment. But on the other hand, the number of proxies received increased in

2004-05 and shows a decrease by 39 in number in the year 2008. This is because

168

as the shareholders are large in number both in India and abroad, they are not in a

position to attend the meeting on the dates specified. Moreover, only shareholders

who want to know the performance of the working of Indian Overseas Bank take

the pain to attend the meeting. Other shareholders, who are merely investors and

expect regular dividend do not have the interest to attend such meetings.

Venue is also one of the factors which keeps a shareholders away from the

meeting; as for some , it is not within their reach. The involvement of authorized

representatives is also quite encouraging. There has been a slight variation in the

attendance of directors. This is because directors may retire/cease/demit office

before the date of Annual General Meeting.

The register of shareholders and share Transfer books of the bank were

closed before two months to the date of Annual General Meeting, to dividend.

Hence shareholders holding shares of the bank before the book closure date are

entitled to receive dividend for that year in respect of their shareholding. The

decisions taken by the Board in these meetings were also informed to the

exchange in the form of proceeding/policies. The quarterly results, annual dates

approved by the board were also informed to the exchange and the press.

The details for the year 2005 – 06 and 2006-07 could not be solicited and hence

they are not incorporated.

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TABLE 5.7

LOCATION AND TIME OF THE EXTRA ORDINARY GENERAL BODY MEETINGS

S.No Nature of Meeting

Date, Day and time of meeting

Venue

1 2nd EGM 30.11.2005 Wednesday 11.00 a.m

Rani Seethai Hall 603, Anna Salai Chennai – 06

2 3rd EGM 25.11.2008 Tuesday 11.00 a.m

Narada Gana Sabha 314 TTK Road Chennai – 18

Source: Annual Report

The Extra-ordinary General Meeting( EGM) were held for the election

of shareholder directors from amongst the shareholders, other than GOI (Govt.

of India).

Extraordinary General meetings were conducted on 02.09.05 for the

election of Directors of the bank from amongst shareholders other than Central

Government on Nov, 20th 2005 and to determine shareholders voting rights at the

EGM and the record date as Oct 25th, 2005. A copy of the notice of EGM was

also submitted to the exchange. Accordingly the election was held on Nov 30th

2005 and 4 candidates were declared elected and will hold office in terms of

clause 11(B) of Nationalized Banks (Management and Miscellaneous Provisions)

Scheme 1970, read with the Banking companies (Acquisition and Transfer of

undertakings) Act 1970 and the Banking Regulation Act, 1949.

Similarly the directors approved to convene an EGM of share holders of the

Bank on 25th Nov 2008 for the election of directors by shareholders, other than the

Central Govt. and also to fix the Record Date as 17th Oct 2008 for the purpose of

determining the eligibility of shareholders to participate and vote at the EGM.

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Three shareholders directors of the bank were elected based on the votes secured

by the candidates.

DECISIONS TAKEN BY THE BOARD

IN 2004

The Directors on the board of the Bank have made changes in the Central

Statutory Auditors of the Bank. It has also considered payment of an interim

dividend of 14% for the year 2004-05. As per the Government of India

notification dated Nov 05, 2001, the bank appointed a chartered Accountant as

part-time non-official Directors of the bank’s Board for a period of three years.

IN 2005

The Board in its meeting approved the formation of a subsidiary company

for financial services subject to the approval of the Reserve Bank of India and

other statutory authorities. It also entered into a Memorandum of understanding

with Export Credit Guarantee Corporation(ECGC) of India Limited to act as their

corporate agent for the marketing, selling and distribution of their products. The

Bank also entered into an agreement with M/s Sundaram Mutual Fund as

corporate agent for the above mentioned purpose. The Indian Overseas Bank also

decided to raise equity capital overseas and listing them in overseas exchanges.

The Board also proposed a final dividend of 10% in addition to the Interim

Dividend declared and paid at 14%. In pursuance of clause (a) of subsection (b) of

section 9 of the Banking Companies (Acquisition and Transfer of undertakings)

Act, 1970 read with sub clause (1) of clause 8 of the Nationalized Banks

(Management and Miscellaneous Provision) scheme, 1970 appointed Shri S.C.

Gupta, Chairman and Managing Director of the Bank as Chairman and Managing

Director of Punjab National Bank. He was relieved from Indian Overseas Bank.

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The board appointed Shri T.S. Narayanasami, as a whole time Director

(designated as the Chairman and Managing Director) of the bank. It also

nominated a part-time non-official director in Bank’s Board. The Board of

Directors in their meeting also decided to convene an EGM of shareholders for

conducting election of directors of the bank from amongst shareholders other than

Central Government and to fix a Record date to determine shareholders voting

rights at the EGM. It was also decided to raise tier II capital by way of unsecured,

subordinated, Redeemable Bonds upto Rs.200 crore. Unaudited financial results

were also discussed in the meeting.

In 2006, Changes were made in the Board of Directors as per sec 9,

subsection 3(h) and (3-A) of the Banking companies (Acquisition and Transfer of

undertakings) Act, 1970. It has also approved the proposal of buying Bharat

overseas Bank Ltd. (BOAL) subject to compliance of all necessary formalities and

also to raise tier II capital upto 300 crores. It was considered in the meeting to

declare a dividend of 26% for the financial year 2005-06.

In 2007 Auditors conducted the limited review of the financial results and

the same was placed before the board for discussion. For the purpose of

registering complaints by investors, it also created a new exclusive e-mail ID and

nominated compliance officer. This year the board at its meeting considered and

recommended a dividend of 30% Shri S.A. Bhat was appointed Chairman and

Managing Director of the bank after Shri. T.S. Narayanaswami ceased to be the

Chairman and Managing Director.

Some changes were also made in the Board and the financial results (both

quarterly half-yearly and yearly) were also approved.

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In 2008, the board of Directors recommended a dividend of 32% for the

year 2007-08 and the financial results were discussed and approved. As usual

changes in the board made, fixing dates for AGM and EGM were decided.

TRANSPARENCY

Transparency implies explaining a company’s polices, decisions and actions to

those to whom it is answerable. Such transparency leads to maximum appropriate

disclosures without jeopardizing the company’s strategic interests. Internally

transparency means openness in bank’s relationship with its employees as well as the

conduct of its business in a manner that will bear scrutiny. Obviously transparency

enhances accountability. Almost all committees in their codes and guidelines have

emphasized the need for openness, transparency and disclosure. The board ensures

adoption of appropriate accounting standards in the preparation of company’s accounts,

and material changes during the financial year are fully discussed and justified.

A typical board should be transparent as far as possible. The board of Indian

Overseas Bank reports about the bank through the Annual Report. If at all any

communication is there in between the management and the shareholders, it is only

through the explanatory statement given for any business to be transacted in the

extraordinary general meeting. Therefore the degree of transparency of the board can be

judged by the contents of the annual report.

Accordingly, the Annual report contains same of the important information such

as Debt-Equity Ratio, Explanation for extraordinary Income, Explanation for

extraordinary expenses, capacity utilization, earnings per share , market price (High and

low), market price chart, and cash flow statement, change in profitability, Accounting

policies, date of book closure unpaid dividend, distribution of shareholding Top five

shareholders, etc.

Earnings per share is an element which is eargerly awaited by the shareholders,

other investors, as well as other market participants. Though the information s hidden in

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the annual report, investors with no accounting background may find it difficult to

ascertain the information. Hence the board is transparent to reveal earnings per share

and market price of the share is yet another essential information for valuing the shares

by using the technical analysis. Many shareholders may not have the time to watch the

price movement due to their busy schedule. That’s why, the bank provides the data

relating to the movement of the price of Indian Overseas Bank’s shares. It is highly

noteworthy to mention here that, the bank has taken strenuous efforts to explain all the

details relating to this issue.

The Bank not only discloses the above mentioned factors but also changes in

business ratios such as interest income to average working funds, Non-Interest income to

working funds, operating profit to working funds return on assets etc. This shows that

the Board owes a fiduciary duty towards shareholders.

Thus it is very clear that the board is transparent in all its endeavours to its

shareholders. The present environment also creates a legal compulsion to provide such

data.

In the study undertaken by the researcher, all the shareholders stated that, the

board informs the shareholders, when some material events have taken place in the bank.

In the post globalization era, the Securities Exchange Board of India attempts to

set right this matter of disclosure and transparency in a smooth way by issuing orders. As

a result, banks are now compelled to disclose material events to the stock exchange, by

virtue of the listing agreement.

In today’s competitive and dynamic business scenario, how a

company/organization reacts to rapid changes in the business environment,

determines the survival of organization, through strategies. These strategies

evolve from practices followed by the organization.

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Best practice is a very useful concept. It is only the best planning and process

which can provide best results. This code of conduct to be followed by Directors

and senior management will really help the management establish good

governance.

TABLE 5.8

THE APPLICABILITY OF CODE OF CONDUCT TO INDIAN OVERSEAS BANK

Principle

Applicability

Remarks

The board has to lay down a code of conduct for all Board members. This should also be posted on the website of the bank. All board members and Senior management personnel shall affirm compliance on an annual basis. The annual report of bank should contain a charter signed by the CHAIRMAN CUM MANAGING DIRECTOR/ ED.

Indian Overseas Bank has a code of conduct. The same was approved by the Board at its meeting held on 30th Sep’ 2006. This has been made applicable to all the Directors and the General Managers.

The bank has already framed a code of conduct for Directors and also first line executives (General Managers) and the same has been posted on the website of the Bank. The Bank has obtained from all Board members and General Managers a conformation with the code of the conduct, the first one for the period ended 31st March 2006. The annual report of the bank contains a declaration to this effect.

Source: RBI guidelines and Indian Overseas Bank Annual Report.

The principle on which the code of best practices is based on openness,

integrity and accountability which again stands for confidence among members.

An open approach to the disclosure and compliance of the codes prompts the

board of Indian Overseas Bank to take effective action and allows the shareholders

and others to scrutinize the bank more thoroughly. The confirmation obtained

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from all members, shows their willingness to exercise their responsibilities

effectively. It helps the board to acquire an open approach and increase the level

of confidence in board governance. To make it further encouraging fully

transparent, the bank has posted these sets of codes in its website. This is one of

the quality standards expected by all the stakeholders to improve board

performance. Risk of failures, frauds and closure of business can be controlled.

TABLE 5.9

BROAD STRUCTURES AND PROCESSES FOR GOOD GOVERNANCE IN INDIAN

OVERSEAS BANK( INDIAN OVERSEAS BANK)

Structures Processes in Indian Overseas Bank

Limit the size of the board so that director

can contribute, and avoid coalitions

Indian Overseas Bank develops guidelines for

the use of committees to ensure that basic

tasks are fulfilled and complex topics are

explored in sufficient depth

Separate the roles of CEO and Chairman to

avoid potential conflicts of interest

It rotates directors through the various

committees to ensure a mix of views

Avoid inside directors on the committees

so that executives do not audit, evaluate,

and reward themselves

It ensures that outside directors, as a group,

meet alone on a specific number of occasions

every year

Ensure a majority of outside directors so

that tough questions are asked

It chooses a lead director to prevent insiders

from dominating the agenda

Require directors to resign upon retirement,

or upon change in employment or

responsibilities

It ensures unrestricted access for board to

management so that information is not filtered

Limit the number of other boards of

directors on which directors can serve

It establishes additional models of information

flow to ensure sufficient information

Place the whole board up for re-election It insists on regular attendance at board

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each year to maintain a mix of skills meetings by all directors

Impose term limits to introduce fresh and

potentially critical viewpoints while

avoiding groupthink

It establishes an orientation programme so that

new directors can contribute effectively.

Establish a set of qualification for directors,

and use them to screen new candidates

It develops effective recruitment and

evaluation processes for the board

Impose a retirement age to maintain a mix

of skill, energy, enthusiasm, and

commitment

It ensures that the management reports

regularly to the board on succession planning

Source: Unpublished records of Indian Overseas Bank

The above table discloses that Indian Overseas Bank strictly adheres to

relevant Corporate Governance principles. Disclosure of the governance

structures and policies of the bank, in particular the division of authority between

shareholders, management and board members is important for the assessment of

the bank’s governance.

The Board structure focuses on the size of the board, Role of Chief

Executive Officer, Directors, Skills, qualification election and retirement of

Directors. To toe the line with the governance structures, Indian Overseas Bank

has developed guidelines based on Reserve Bank of India norms. To avoid

potential conflicts of interests, it rotates directors through various committees

which show a healthy sign of the board .Indian Overseas Bank insists that only the

directors who attend all the meetings and place a good record of attendance are

eligible for election to make the election and re-election of Directors effective.

This principle indirectly motivates all the directors to attend all board meetings.

Indian Overseas Bank has a very good recruitment programme and organizes

orientation and training programme regularly to maintain a mix of skills on the

Board. By applying these policies, the bank is in a position to go for assessment

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of the board. Such evaluation process motivates the board members to seek more

incentives, rewards and a huge share of remuneration on the basis of the reports

submitted by the remuneration committee and audit committee.

The accounts of Indian Overseas Bank are audited by external auditors

every year. The responsibility of auditors is to express their opinion based on their

audit to the President of India. Accordingly, audit is conducted in accordance with

the auditing standards and are free from misstatements. One such accounting

standard disclosed in the annual report is Accounting Standard-18 -related party

Transactions.

TABLE 5.10 DISCLOSURES OF AUDIT COMMITTEE REGARDING RELATED PARTY TRANSACTIONS

Principle

Applicability

Remarks

Basis of related party transaction detailed below should be placed periodically before the Audit committee. A) A statement in

summary form, of transactions with related parties in the ordinary course of business.

B) Details of material transactions with related parties, which are not in the normal course of business.

C) Details of material transactions with related parties or

In the Indian Bankers Association meeting held on 07.04.2006, the following decisions have been taken amongst the banks. Related parties shall have the same definition as per Accounting Standard (AS) 18 with the exemption available for banks for not disclosing the transactions with the subsidiaries and RRBs as approved by RBI earlier.

Indian Overseas Bank have been implementing the instructions.

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others which are not at an arm’s length basis together with the management’s justification.

Source: RBI guidelines and Indian Overseas Bank annual report.

Regarding related party transaction, Indian Overseas Bank has no

significant related party transactions with its Directors, Management, their

subsidiaries or relatives etc. that would have potential conflict with the interest of

the bank. While placing records before the audit committee of the bank, it

discloses this information every year at the board meetings. We can infer from

this that since Indian Overseas Bank adheres to the principles of SEBI, it is

evident that there are no exceptional transactions with deviations from the existing

rule. This is one reason for having a sound Corporate Governance. In compliance

with the Reserve Bank of India guidelines in respect of Accounting standard 18

there is no subsidiary of the bank nor any disclosure required for the associates.

The associates being, Bharat Overseas Bank Ltd, Dhenkanal Gramya Bank, Puri

Gramya Bank, and Pandian Gramya Bank. The Chairman cum Managing

Directors and one Executive Director are the key management personnel involved.

BIS states that transparency can reinforce sound corporate Governance.

Therefore the banks should disclose the matters which are mandatory including

performance related parameters as part of notes to the balance sheet. Banks are

also required to disclose the accounting treatment or policies.

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TABLE 5.11

DISCLOSURE OF ACCOUNTING TREATMENT

Principle

Applicability

Remarks

Disclosure of accounting treatment. If in the preparation of financial statements a treatment different from that prescribed in Accounting standard has been followed, the facts have to be disclosed in Corporate Governance Report.

This is being complied with.

Strictly complied with.

Source: RBI guidelines and Indian Overseas Bank Annual Report.

We infer from the above table that auditors of the bank disclose all the

financial statements as per accounting standards. No deviation of accounting

treatment has been discovered as it is strictly complying with GAAP (Generally

accepted accounting principles). All the statements have been prepared in

accordance with the requirement of clause 32 of the listing agreement with the

stock exchange. It also discloses notes on accounts wherever necessary. The

auditors of the bank show utmost care in segment reporting and accounting for

taxes on income. We can conclude from these points that auditors of Indian

Overseas Bank shoulder greater responsibilities in matters to be disclosed in

Corporate Governance report. Above all, all matters are fully disclosed.

Every company has set up a policy to establish and maintain a system of risk

management which includes a review of the risk management system. Indian

Overseas Bank has set up an effective internal audit function, to review the

effectiveness of the Risk management system. The risk management committee is

designed to identify, assess, monitor and manage risks.

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TABLE 5.12

THE SYSTEM OF RISK MANAGEMENT

Principle

Applicability

Remarks

Board Disclosures – Risk management.

The Bank has already put in place the Risk Management system; Risk management policies which is being implemented by the Bank. The progress in this direction is placed before the Board on a quarterly basis.

Indian Overseas Bank has also framed a Board level Risk management committee comprising Chairman cum Managing Director, Executive Director, RBI Nominees and a shareholder director.

Source: RBI guidelines and Indian Overseas Bank Annual Report.

The above mentioned table discloses that Indian Overseas Bank has an

effective risk management committee so that all the stakeholders know the process

by which it is managing the business risks. This committee was formed to inform

the board members about risk assessment and minimization procedures. The

periodical review, on a quarterly basis ensures that the management is effective in

controlling risks.

All companies are expected to raise money through initial public offer (IPO ) and

the same to be informed to Audit Committee on the Board. The offer document

should state the purpose for which funds will be utilized and the same should be

certified.

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TABLE 5.13

THE STATUS OF AUDIT COMMITTEE BOARD REGARDING INITIAL PUBLIC

OFFER

Principle

Applicability

Remarks

Proceeds from the Public/Rights/Preferential issue to be informed to the ACB till such time the money is fully utilized and such statement has to be certified by the statutory Auditors of the Bank.

Noted for implementation.

In the IBA meeting held on 7th April 2006, it was decided that the money raised by the bank is fundable and it would be difficult for the bank to segregate and disclose the various purposes for which funds have been used. Banks will as such indicate for the purpose of clause 49(IVC) that the monies raised has been used for the purpose as stated in the related offer document.

Source: RBI guidelines and Indian Overseas Bank Annual Report.

We can infer from the above table that Indian Overseas Bank raise money

through an Initial public offering and uses the same for various purposes like

capital expenditure, granting loans and advances etc. The proceeds from the

public are made more transparent to show that funds raised have been used only

for the purpose mentioned in the offer document. Hence the statement of sources

and application of funds by Indian Overseas Bank is certified by the auditors of

the bank and approved by the Audit Committee.

Remuneration of Directors is a major Corporate Governance problem in almost all

sectors. On the one side, companies need to pay more to attract talent. The level

of pay affects the quality of executives that an organization can attract. On the

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other hand, excessive pay to executives will eat the earnings made with the

investors money which is a corporate governance problem.

TABLE 5.14

DETAILS OF REMUNERATION OF THE DIRECTORS

Principle

Applicability

Remarks

Remuneration of Directors A) All pecuniary

relationship or transactions of the NED in the corporate Governance section.

B) Criteria for making payments to the NED.

C) Disclosures of number of shares and convertible instruments held by NED.

D) The NED should disclose in writing the number of shares/convertible instruments held by them in the Bank before their appointment in the Bank, which shall be mentioned in the notice to the shareholders.

The composition, remuneration etc., of the Board is governed by Provisions of Nationalized Banks (Management and Miscellaneous Provisions) Scheme, 1970. The NED do not have any material pecuniary relationship or transaction with the Bank. Remuneration paid to Chairman cum Managing Director/Executive Director as fixed by the GOI is mentioned in the Corporate Governance section the Annual Report. The company shall publish the criteria for making payments to NED in its Annual Report. Alternatively, this has to be posted on the Bank’s website.

The NED are nominated by the Central Government on the recommendation of the RBI and the shareholder Directors are elected at the General meeting. They are paid only sitting fees. The holding of Indian Overseas Bank shares by the directors are mentioned in the annual report.

Source: RBI guidelines and Indian Overseas Bank Annual Report. NED-Non Executive Director.

It is observed from the table that clause 49 of the listing agreement requires

the listed companies to establish and disclose a formal and transparent policy on

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executive’s remuneration and for fixing remuneration package of individual

directors based on the principles of fairness, reasonableness and accountability.

There is a clear relationship between responsibility and performance vis-à-

vis remuneration. The table also reveals that Indian Overseas Bank has not

disclosed clearly its remuneration policy in its report. So far as disclosure of

remuneration of Non Executive Directors is concerned, Indian Overseas Bank has

not disclosed the details of remuneration as per fixed component and performance

linked incentives, details of perks and allowance of directors. But it pays only

sitting fees as fixed by the government of India norms and Reserve Bank of India

guidelines and the holding of Indian Overseas Bank shares by Non Executive

Directors are mentioned in the annual report every year.

CONCLUSION

The Board of Directors records the appreciation of the goodwill and

support of the valued customers, shareholder, other stakeholders and

correspondents of the Bank in India and abroad.

The bank has always been proactive in adopting good Corporate

Governance. The transparent policies of the bank in turn ensure a high degree of

disclosures. Indian Overseas Bank’s is second to none in its commitment to high

ethical standards and corporate values.

As the bank moved forward into 2008-09, with the vision “To be a leader –

in terms of profit and growth, providing safe and ethical banking services to

customers”, the researcher must not fail to mention here that Indian Overseas

Bank is ranked FIRST among the public sector Banks. It is proved by the survey

conducted by Business Today and Financial Express. This makes the Indian

Overseas Banks set even more challenging goals and strive further to ensure all

round improvement at all performance levels.