Impact of corporate governance on bank profitability - post reforms by RBI and SEBI

Main Article Content

Riya Anil Rai

Abstract

In India, the increasing awareness with respect to CG, particularly in the commercial banking industry can be attached to a variety of factors such as liberalization, scams, corporate failures in banks, accounting and other irregularities that have led to an era of rising public distrust of the governance process in the banking landscape. Because of economic problems arising out of banking mis-management and failures, studies on bank profitability have become imperative for recognizing problems and mitigating economic risks. Over the last few years, Indian banks' toxic loan pile has increased considerably in addition to frequent instances of governance lapses being identified by the regulator. Indian banks' failure to adhere to acceptable business practices has unraveled a chain of events that have caused distress to the public causing the regulator to overhaul its outlook towards CG in banks and decision to infuse capital in the banking sector to revive it. The study attempts to assess the relation between governance and other factors' impact on the bank profitability with empirical evidence from Axis, HDFC, ICICI, PNB, SBI and Yes Bank. The study outlines links between the Bank's Size, Board Independence, Independence of Audit Committee, Audit Committee Strength, Duality of Role, NPA Divergence and profit by using Return on Equity, Return on Assets and Net Interest Margin as proxies for measuring profitability. The findings indicate that Audit Committee Independence, Audit Committee Strength had a statistically significant impact on bank profits, while Bank Size had a negative affiliation to profits as per all three indicators of profits.

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Author Biography

Riya Anil Rai, Symbiosis Institute of Business Management (SIBM) Symbiosis International (Deemed University) (SIU)

The author is currently pursuing Masters in Business Administration from the aforementioned university and is pursuing Finance as her specialization. The author has deep interest in the topics of Banking, Investment, Finance and Regulatory Compliance.

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