`Governance will nip systemic risks`

K V Kamath, managing director and CEO, ICICI Bank, today said domestic banks need to take special care to imbibe the best corporate governance practices to avoid risks of systemic crisis and to enhance shareholders’ value.

The challenge of corporate governance for banking entities gets multiplied as they are highly leveraged financial intermediaries and bad governance could lead to systemic crisis, he said.

Banks channel public savings into productive investments. They are in the business of risk taking as there is time lag in credit decisions and their results, Kamath said. He was addressing a corporate governance summit orgainsed by the Confederation of Indian Industries.

They have to also consider objectives of different stakeholders such as customers, shareholders and regulators. It is clear that the effect of bad governance could be harsh leading to a systemic crisis, he warned.

Referring to compliance with provisions of Clause 49 of the listing agreement of stock exchanges, he said domestic companies need to gear up and the avoid tick-box approach which indicates preference for formal compliance. They should ensure that the spirit of governance is not lost.

Kamath said a constructive tension is necessary between independent directors and management directors for the success of a company. Boards have now become a power centre in the company and play a strategic role, he added.

Their approach should not be just to meet regulatory norms for governance but also imbibe ethics and enhance value for stakeholders. Comapnies need to balance conflicting needs of various stakeholders in competitive environment.