Relationship of Corporate Governance and Efficiency of Selected Public and Private Sector Banks in India

The business of banks runs on the public faith and their confidence in banks. The confidence level of the public can only be developed by proper disclosures and transparency. The good corporate governance practices ensure proper interest protection of all the stakeholders. The concept of corporate governance in case of banks differs from the corporate governance in other sectors. In banks, corporate governance must be supported by ethical leadership. The performance of banks is directly related to their leadership and size of the board. This paper is focusing on the level of corporate governance in the selected public sector and private sector banks and its impact on the NPA in banks. The problem in question for this paper was the role of corporate governance in the effective performance of public and private sector banks. So, this paper investigates the impact of corporate governance on the financial performance of banks, for example, on banks' efficiency to cater to the needs of public, innovations regarding product and services and about non-performing assets. The research methodology of this paper is based on primary and secondary sources. The primary sources include an unstructured interview of the managerial persons of selected banks. The primary data helped in understanding the different governance issues and problems in the banking sector. The secondary data is collected from the websites of concerned banks. The data collected with the help of primary and secondary data was analyzed with the help of statistical tools such as multiple regression model. The bank efficiency was calculated based on different factors such as board leadership structure, board composition, and board size. It was observed that the performance of any bank is closely related to corporate governance and ethical leadership of banks. It is found that among the corporate governance variables, smaller board size and a higher ratio of block ownership consistently seem to have better efficiency. However, other corporate governance variables do not have a significant and consistent impact on efficiency. There are a few factors, which could explain the weak system of corporate governance in India. The effectiveness of independent director provisions would be severely compromised in an environment where companies are run by autocratic leaders and in a culture where confrontations are generally avoided. However, certain variables related to management may not be measured such as ethical values of promoters and top-level management of public and private sector banks. There are many such examples in the Indian context and also in the globe. The paper has certain limitations such as all the banks in India were not studied so the results may be different when we include all the private and public sector banks. Further, it is suggested that the government and RBI as central banks should ensure effective governance in banks. The problem of NPA can be resolved by good corporate governance culture in banks.