BoB first public sector bank to get governance rating

Bank of Baroda (BoB) is the first public sector bank to have been assigned a corporate governance rating (CGR).

Rating agency Icra has assigned the bank a rating of CGR2 for its governance practices, one notch below on a rating scale of CGR1 to CGR6.

HDFC Bank is the only other bank to have been assigned a similar rating, GVC1, for governance and value creation (GVC) by Crisil.

Contrary to private banks, public sector banks cannot achieve the highest possible corporate governance rating.

"Systematic constraints in public sector banks weigh down the rating. This is in respect to the composition of boards and committees, as well as limited scope of such banks to adopt emerging best practices in succession planning, executive compensation, not to mention limited managerial autonomy wherein shareholder rights are weaker compared to companies in other sectors," said Anjan Ghosh, general manager, who looks after corporate governance ratings at Icra.

BoB, in which the government holds 67 per cent stake, is one of the largest public sector banks in the country with assets of over Rs 84,900 crore and an income of over Rs 7,900 crore as on 31st March, 2004.

It operates in 16 countries, which account for around 14 per cent of the bank's overall business. Icra feels BoB can adopt the A S Ganguly Committee recommendations with respect to the functioning of its board and strengthening market risk management function.

"The bank's disclosure standards "" while fully in compliance with Reserve Bank of India (RBI) guidelines and at par with other public sector banks "" could improve and align itself with the best practices in this area," Ghosh said.

The rating reflects BoB transparent ownership, well-defined delegation of power and accountability, satisfactory risk management practices and an elaborate audit function.

BoB has adopted and follows such practices, conventions and codes as would provide its financial stakeholders a high level of assurance on the quality of corporate governance, Icra said. The rating agency considers financial stakeholders in any bank to include shareholders and depositors.

Icra has also assigned corporate governance ratings to Infosys Technologies (CGR1), Godrej Consumer Products (CGR2+), ITC (CGR2) and one more in the financial sector "" PNB Gilts (CGR3+).