Impact of Corporate Governance Facets on Financial Performance A Study on Public and Private Sector Banks in India

Abstract

The Indian and global economy have witnessed some of the biggest corporate collapses at the dusk of the 20th century and also at the dawn of the 21st century. The scale and magnitude of those collapses, the amount of unethical and illegal practices of the gigantic business conglomerates had left the world in shock. Some of those companies are now being referred to as the best examples of governance failures and they include Xerox, WorldCom, Enron, Lehman Brothers, Dynegy, Tyco, etc. India has also witnessed a string of corporate scams that had a detrimental effect on investors confidence and revealed the misgovernance practices of the corporate sector. The major corporate governance failures in India were Satyam, Sahara India, and Kingfisher Airlines, etc. It was then the business world understood the importance of corporate governance and an urge was felt to improve corporate governance codes and practices. newlineThe banking system is the heart of the economic life of a nation. The banking sector is an essential and integral part of any economy as economic health has a direct and close connection with the soundness of the banking system. In the whole world, the Indian banking system is one of the healthiest and strongest banking systems. The liberalised, globalised and integrated economy, the dynamic nature of the economic environment and relinquishment of the trade boundaries of different countries have made the world market singular and that is why Indian companies at present cannot and shouldn t ignore the gravity of corporate governance. The pursuit of sound business ethics, strong professionalism, transparency and integrity helps the banks in aligning its objectives with the interests of stakeholders and the society. The trust and confidence of the public, society, stakeholders, depositors, potential depositors, investors and potential investors are the vitamins that keep the banks alive and kicking and corporate governance ensures a continuous flow of all these vitamins.