Corporate governance of banks

The corporate governance of banks is different and unique from that of the other organizations. This is because the activities of the bank are less transparent than other organizations. Thus, it becomes difficult for shareholders and creditors to monitor the activities of the bank. The situation becomes even more difficult when a major part of the share capital is with government. Additionally, banks also differ from most other companies in terms of the complexity and range of their business risks, and the consequences if these risks are poorly managed.

The Banking Sector in India has definitely not remained unaffected to the developments taking place worldwide. Enhancing the level of corporate governance structure of Indian banks is imperative. The regulatory bodies in India are the Reserve Bank of India and the Securities Exchange Board India. The RBI prescribes prudential principles and norms. The RBI performs the corporate governance function under the Board for Financial Supervision (BFS).

The Basel Accord was first established in 1988 by the Basel Committee on Banking Supervision under the Bank for International Settlements. The BIS was established on 17 May 1930 and is the world's oldest international financial organization. The Basel Committee was established by the central-bank Governors of the Group of Ten countries in 1974. It meets regularly four times a year. It has four main working groups. The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.

The Basel Accord was established to provide a set of minimum capital requirements to banks. According to this accord, the banks would be required to maintain a minimum capital requirement a propos the loans given out by them. The 1988 Basel Accord also known as Basel I primarily focused on credit risk. The Central Banks of several countries that have agreed to become signatories have been given the responsibility of enforcing the provisions. In India, the Reserve Bank of India shoulders this responsibility.

The second of the Basel Accords, Basel II was first published in June 2004 and established in 2005. This accord widened the scope of Basel I by establishing capital requirements for market risk and operational risk, in addition to credit risk. Basel II also included provisions which allowed banks to use advanced statistical methods to compute possible losses for which they were required to hold capital. Therefore, international banks had an advantage as they could lower their capital requirements through the use of advanced models.

The third of the Basel Accords, Basel III was created in response to the flaws in financial regulation which led to the crisis and also due to appeals for the reform of capital adequacy and liquidity standards for banks.

According to the Basel Committee Report of 1999, Banks have to maintain a certain level of transparency and disclosures in their statements. The annual report should disclose a number of factors relating to the operations of the banks such as accounting ratios, business per employee, related party disclosures and information.

Recent Steps Taken by Banks in India for CG

•                   Induction of non-executive members on the boards

•                   Constitution of various Committees like Management committee, Investor’s Grievances committee, ALM committee, etc.

•                   Role of Independent auditor

•                   Gradual implementation of prudential norms as prescribed by the RBI,

•                   Introduction of Citizens Charter in banks

•                   Implementation of “Know Your Customer” concept

•                   The Board of Directors and top management of the Bank are chiefly responsible for good CG.

Frauds by others

•                   Forgery and altered cheques -This type of fraud involves altering the amount on the face of a cheque for nefarious purposes

•                   Stolen cheques -This type of fraud is initiated by the theft of a few cheques. Then accounts are opened using fake identities, and the suitably altered stolen cheques are deposited, followed by convenient withdrawal of the amount. In a similar way, stolen blank cheque books are misused by fraudsters.

•                   Accounting fraud -Overstating sales and income, dishonest accounting and inflating the worth of the company’s assets to hide that the company is actually functioning in loss constitute Accounting Fraud. E.g., Satyam.

•                   Credit card fraud - Credit cards lend themselves to several opportunities for fraud. Made of three PVC sheets, of which the central sheet is known as the core stock, credit cards carry substantial data. Credit card frauds can be carried out in several ways.

•                   Frauds committed by auditors

•                   Power of Attorney fraud- A “Power of Attorney” (“POA”) is a legal document through which the donor grants the power to his attorney to ‘step into the donor’s shoes’ and conduct legal and financial matters on the donor’s behalf.

•                   Phishing- In this type of fraud, sensitive data such as account numbers, login Independent Directors (IDs), passwords, and other verifiable information are extracted from gullible individuals either through fraudulent telephone calls or emails. These data are then misused for dishonest purposes, including identity theft. Phishing is most often perpetrated through mass emails and spoofed websites.

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FINANCIAL INFORMATION TRANSPARENCY

FINANCIAL INFORMATION AND TRANSPARENCY RELATED DISCLOSURE FOR GOOD CORPORATE GOVERNANCE

1)        Financial Calendar

2)        Listing of Shares in Stock Exchange

3)        Details of Shareholders/ Shares

4)        International Listing

5)        Stock Market Data (Share Price Volatility)

6)        Share Transfer Process

7)        Dividend Payment

8)        Special Resolution by Postal Ballot

1)     Financial Calendar:

In all the companies disclosure of financial calendar include following data:

•Financial Calendar •Date, Time and Venue of Last Annual General Meeting •Book Closure Date •Dividend Payment Date •Date of Posting of Annual Report •Last Date of Receipt of Proxy forms •Approval Date of Quarterly Results •Stock Code •Special Resolution of Postal Ballot •Reporting on Conciliation of Account GAAP •Board Meeting Date •Probable Date of Dispatch of Warrants for Dividend

2)     Listing of Shares in Stock Exchange:

Listing means admission of securities to dealings on a recognized stock exchange. The securities may be of any public limited company, Central or State Government, quasi-governmental and other financial institutions/corporations, municipalities, etc.

The objectives of listing are mainly to:

•          Provide liquidity to securities;

•          Mobilize savings for economic development;

•          Protect interest of investors by ensuring full disclosures.

3)     Details of Shareholders/ Shares:

Following details of shareholders/shares are disclosed in sampled companies include:

•                   Name of Investors/Shareholders

•                   Number of shares and number of Shareholders

•                   Percentage of total shares and total Shareholders

•                   Percentage of Share Capital

•                   Amount of Shareholding

•                   Shareholding of Nominal Value

•                   Number of Shares held in demat form

4)     International Listing:

GDR (Global Depositary Receipt):

A global depositary receipt (GDR) is a bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches.

A financial instrument used by private markets to raise capital denominated in either U.S. dollars or Euros.

ADR (American Depositary Receipt):

An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction. This is an excellent way to buy shares in a foreign company while realizing any dividends and capital gains in U.S. dollars. However, ADRs do not eliminate the currency and economic risks for the underlying shares in another country. For example, dividend payments in Euros would be converted to U.S. dollars, net of conversion expenses and foreign taxes and in accordance with the deposit agreement. ADRs are listed on the NYSE, AMEX or Nasdaq as well as OTC.

5)     Stock Market Data (Share Price Volatility):

Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. Stock price volatility is an indicator that is most often used by options traders to find changes in trends in the market place. There are two main types of stock volatility including Historical Volatility and Implied Volatility that are used in the options markets. The increase or decrease in volatility results from changes in investors emotions in the market place. More specifically greed and fear in the market place are the two main factors that cause stock prices to change. Stock price volatility tends to rise when there is new information released in the markets however the extent to which it rises is determined by the relevance of that new information as well as to the degree in which the news surprises investors.

6)     Share Transfer Process:

The shares of a company are movable property and are generally freely transferable. Though there might be certain restrictions on transfer of shares of private companies provided in the articles of the company, such restrictions are generally added to protect the rights of one set of investors or the shareholders. However, shares of a public company are always freely transferable. Here, researcher has taken 3 aspects of share transfer process which are normally disclosed in sampled companies.

•          Shares in physical form

•          Share transfer is allotted agent

•          Time period for share transfer process

Power of refusal to register transfer of shares is to be exercised by the company within thirty (30) days from the date on which the instrument of transfer or the intimation of transfer, as the case may be is delivered to the Company.

7)     Dividend Payment:

The term ‘dividend’ has been defined under Section 2(35) of the Companies Act, 2013. The term “Dividend” includes any interim dividend. It is an inclusive and not an exhaustive definition. According to the generally accepted definition, “dividend” means the profit of a company, which is not retained in the business and is distributed among the shareholders in proportion to the amount paid-up on the shares held by them.

8)     Special Resolution by Postal Ballot:

Applicable for E-Voting:

•                   Every listed company or

•                   A company having not less than one thousand shareholders shall provide to its members facility to exercise their right to vote at general meetings by electronic means.

•                   E-Voting Period:

•                   The e-voting shall remain open for not less than one day and not more than three days.

•                   In all such cases, such voting period shall be completed three days prior to the date of the general meeting.

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APPLICATION FOR RERA REGISTRATION

Ø Application of registration u/s4 to be made as per the Form ‘A’ prescribed under Rule 3(3) and along with the same declaration has to be filled in Form ‘B’ as per Rule 3(6).

Ø The concept of 70:30 is mentioned in section 4(2)(i)(d).

Ø Registration is guaranteed under section 5.

Ø Registration can be revoked u/s 7.

Registration and obligation of real estate

Ø As per RERA it now mandatory that real estate agents selling the premises in Real estate project have to register u/s9 by complying as per the form ‘G’ prescribed under Rule 11(2)

Ø As per Rule 12(4) the registration shall be valid for period of 5years.

Ø The provision for renewal in respect of Real estate agent should not be done as per Rule 13.

Ø There are various obligation caused on Real estate agent under Rule 14

Ø Revocation of registration of breach of provision mentioned in Rule15.

Ø As per the Rule 16 Real estate agents has to maintain and preserves separate books, accounts, documents. 70% of realization from allottees in a separate bank account

1.    The Act mandates that a promoter shall deposit 70% of the amount realized from the allottees, from time to time, in a separate account to be maintained in a scheduled bank. This is intended to cover the cost of construction and the land cost and the amount deposited shall be used only for the concerned project.

2.    The promoter shall be entitled to withdraw the amounts from the separate account, to cover the cost of the project, in proportion to the percentage of completion of the project. However, such withdrawal can only be made after it is certified by an engineer, an architect and chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project

3.    The promoter is also required to get his accounts audited within six months after the end of every financial year by a practicing chartered accountant. , Further, he is required to produce a statement of accounts duly certified and signed by such chartered accountant, and it shall be verified during the audit that (i) the amounts collected for a particular project have been utilised for the project; and (ii) the withdrawal has been in compliance with the proportion to the percentage of completion of the project.

The application for registration must disclose the following information:

Ø Details of the promoter (such as its registered address, type of enterprise such proprietorship, societies, partnership, companies, competent authority)’.

Ø A brief detail of the projects launched by the promoter, in the past five years, whether already completed or being developed, as the case may be, including the current status of the projects, any delay in its completion, details of cases pending, details of type of land and payments pending.

Ø An authenticated copy of the approval and commencement certificate received from the competent authority and where the project is proposed to be developed in phases, an authenticated copy of the approval and commencement certificate of each of such phases.

Ø The sanctioned plan, layout plan and specifications of the project, plan of development works to be executed in the proposed project and the proposed facilities to be provided thereof and the locational details of the project.

Ø Performa of the allotment letter, agreement for sale and conveyance deed proposed to be signed with the allottees.

Ø Number, type and carpet area of the apartments and the number and areas of garages for sale in the project.

Ø The names and addresses of the promoter's real estate agents, if any, and contractors, architects, structural engineers affiliated with the project.

A declaration by the promoter supported by an affidavit stating that:

Ø He has a legal title to the land, free from all encumbrances, and in case there is an encumbrance, then details of such encumbrances on the land including any right, title, interest or name of any party in or over such land along with the details;

Ø The time period within which he undertakes to complete the project or the phase; and

Ø 70% of the amounts realised for the real estate project from the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose.

DUTIES OF PROMOTER

Ø Upon receiving the login id and password Promoter has to create his web page on the website of the authority

Ø To enter all the details of the proceed project on his web page

Ø Once in three months the promoter has to update the data on web page in respect of booking status, approvals, status of the project etc..

Ø Advertising material should reflect should the registration details of the promoter.

Ø Promoter has to abide by all the obligation under section 11(3) at time of time of booking

Ø As per the section 12 promoters will solely responsible for on regards as the advertisement of prospectus.

Ø As per section 13 promoter cannot accept more than 10% of the cost of apartment without executing the contract.(in MOFA it is used to be 20 %)

Ø As per section 15 promoters cannot transfer the Real estate project to the third party without obtaining the consent 2/3rd of the allotters.

Ø  As per section 16 promoters has to insure Real estate projects in respect of land and building and construction of Real Estate project.

Ø As per s.17 promoter has to transfer the title when the norms are fulfilled for its transfer.(this done with help of amendment of land titling bill 2010 which gives the entire mechanism of land titling

 BENEFITS OF THE CUSTOMER

The Authority shall in order to facilitate the growth and promotion of a healthy, transparent, efficient and competitive real estate sector make recommendations to the appropriate Government of the competent authority, as the case may be, on,—

(a) protection of interest of the allottees, promoter and real estate agent;

(b) creation of a single window system for ensuring time bound project approvals and clearances for timely completion of the project;

(c) creation of a transparent and robust grievance redressal mechanism against acts of ommission and commission of competent authorities and their officials;

(d) measures to encourage investment in the real estate sector including measures to increase financial assistance to affordable housing segment;

(e) measures to encourage construction of environmentally sustainable and affordable housing, promoting standardisation and use of appropriate construction materials, fixtures, fittings and construction techniques;

(f) measures to encourage grading of projects on various parameters of development including grading of promoters;

 (g) measures to facilitate amicable conciliation of disputes between the promoters and the allottees through dispute settlement forums set up by the consumer or promoter

associations;

(h) measures to facilitate digitization of land records and system towards conclusive property titles with title guarantee;

(i) to render advice to the appropriate Government in matters relating to the development of real estate sector;

(j) any other issue that the Authority may think necessary for the promotion of the real estate sector.

CIVIL COMPLAINT

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Authority or the adjudicating officer or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.

 (1) No court shall take cognizance of any offence punishable under this Act or the rules or regulations made there under save on a complaint in writing made by the Authority or by any officer of the Authority duly authorised by it for this purpose.

(2) No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under this Act.

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THE REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016

The Real Estate (Regulation and Development) Act, 2016 which seeks to protect home-buyers as well as help boost investments in the real estate industry.

Coverage of this act:-

Ø The Real Estate Act makes it mandatory for all commercial and residential real estate projects where the land is over 500 square meters, or eight apartments, to register with the Real Estate Regulatory Authority (RERA) for launching a project, in order to provide greater transparency in project-marketing and execution

Ø For on-going projects which have not received completion certificate on the date of commencement of the Act, will have to seek registration within 3 months. Application for registration must be either approved or rejected within a period of 30 days from the date of application by the RERA. On successful registration, the promoter of the project will be provided with a registration number, a login id and password for the applicants to fill up essential details on the website of the RERA. For failure to register, a penalty of up to 10 percent of the project cost or three years' imprisonment may be imposed.

PROTECTION OF BUYERS

Ø The Act prohibits unaccounted money from being pumped into the sector and as of now 70 per cent of the money has to be deposited in bank accounts through cheques.

Real Estate Regulatory Authority and Appellate Tribunal

It will help to establish state-level Real Estate Regulatory Authorities (RERAs) to regulate transactions related to both residential and commercial projects and ensure their timely completion and handover. Appellate Tribunals will now be required to adjudicate cases in 60 days as against the earlier provision of 90 days and Regulatory Authorities to dispose of complaints in 60 days while no time frame was indicated in earlier Bill.

Certain areas to be exempted from the RERA

Ø The Real Estate Act makes it mandatory for all commercial and residential real estate projects where the land is over 500 square meters, or eight apartments, to register with the Real Estate Regulatory Authority (RERA) for launching a project, in order to provide greater transparency in project-marketing and execution. Where the area of land does not exceed to 500 square meters or the no. of apartments does exceed to be developed.

Ø Provided that: If the appropriate government considers it necessary, it may, reduce the threshold below five hundred square meters or eight apartments, as the case may be.

Ø Promoter has received the completion certificate for real estate project prior to commencement act.

REAL ESTATE REGULATORY AUTHORITY

Ø  Authority is established and incorporated under section 20. According to section u/s 35 Authority has power to take sue motto complaints and inquire against information and conduct the enquiry or invest on that matter. Authority can take cognizance on the sue motto if they necessary to so.

Ø According to section 36 interim order cabs are passed by the authority. 

Ø  Authority can be issue direction u/s 37.

Ø Authority has power u/s 38 to impose the penalty or interest.

Ø Authority has power to rectify its order any time within a period of 2years from the date of order made u/s 39.

If somebody does not agree to the direction or order of Authority then that person can file an appeal under REAL ESTATE APPELATE TRIBUNAL.

REAL ESTATE APPELATE TRIBUNAL

Ø REAL ESTATE APPELATE TRIBUNAL is established under section 43. As per s.43 (5) appeal of promoter would be entertained only on depositing at least 30% of the penalty on higher percentage determined by the appellate tribunal.

Ø As per section 44(5) appellate authority should be endeavor to dispose off the appeal within a period of 60days from the date of receipt.

Ø As per section 58 appeals can be filled against Appellate Tribunal within 60 days of communication of the order of the Appellate tribunal. In case of delay adequate reasoning is required.

OFFENSES AND PENALITIES

Ø As per section 59(1) punishment for non registeration u/s 3 for promoter would be penalty which may extend up to 10% of the estimated cost of the Real Estate Project as determined by the Authority.

Ø As per s.59(2) if the order passed u/s 59(1) is not complicated then promoter shall be punishable with imprisonment for a term which may extended up to 3yrs or with fine which extend to further 10% of the estimated cost of the project.

Ø As per s.60 the penalty for contravention of s4. of promoter would be penalty which may extend up to 5% the estimated cost of the Real Estate Project as determined by the Authority.

Ø As per the s.61 penalty for the contravention of provision of this act and rules other than s.3 and s.4 for the promoter shall be a penalty which may extend to 5% of the estimated cost of the real estate project as determined by the authority

Ø As per s.62 non registration and contravention u/s 9 and 10 done by Real estate agent, in such case he shall be liable to a penalty of rs10000 for everyday during such default continues, which may cumulatively extend up to 5%of the cost of the plot, apppartment or building, as the case may be, of the Real estate project, for which the sale or purchase has been facilitated as determined by the authority.

Ø As per s.63 penalty for failure to comply with the order of Authority would be penalty for everyday during which such default continues, which may cumulatively extend up to 5% of the real estate project as determined by the authority

Ø As per s.64 punishment for contravention of order of Appellate Tribunal by promoter shall be imprisonment for term which may extend up to 3yrs or fine for everyday during which such default continues, which may cumulatively extend up to 10% of the estimated cost of the real estate project or with both.

Ø As per s.65 penalty for failure to comply with order of the Authority by the real estate agent shall be a penalty for everyday during which default continues, which may cumulatively extend up to 5% of the estimated cost of plot, apartment or building or the case may be.

Ø As per s.68 punishment for the failure to comply with order of Authority by allottee shall be imprisonment for a term which may extend up to one year or with fine for everyday during which default continues, which may cumulatively extend up to 10% of the plot or with both

Ø As per the compounding of offences can be done either before or after institution of prosecution before court and any payments of sum shall not in any case, exceeded the maximum amount of the fine which may be imposed for the offense so compounded.

Ø As per section s.80 cognizance of offence can be taken by court on a complaint in writing made by the authority or by any officer of the authority duly authorized by it for this purpose.

We, "PNJ Legal Consultants" are one of the well known organizations engaged in providing Consultancy Services keeping in mind the Client Service Mentality.

Our team members deliver excellent performance in providing these services and our clients can avail the services at affordable prices.

Our sophisticated team has complete knowledge of various exercises and technicalities that are used in our services. Our services includes Strategy Consulting, GST Consulting, Asset Management, Feasibility Study, International Arbitration, Due Dilligence, Franchisee Consulting, Financial Audits, Operational Audits, Tax Heaven Registrations, Shareholder Agreements, Start up Consulting, IP Consulting, Taxation Services, Accounting system design and Mergers Acquisitions.

Contact at parascs@gmail.com or refer website www.pnjlegal.com