Compliance of Corporate Governance for Ingenious Mergers and Acquisitions in Banks

In the times of deregulation and financial liberalization, and the myriad challenges confronting the banking sector as well, the approach of the corporate governance structure need to have in place the best possible standards of governance indulging in the implementation and enforcement mechanisms with the basic objective of investors’ protection while standing erect and stable. In the transitory period of the convergence of the various opportunity zones in the financial markets, the role of banks has shifted to an unfamiliar terrain including the hi-tech e-banking and the banks can ignore it only at its own peril. Thus, in the paradigm shift within and out, there is an evergrowing consensus to take the lead in establishing the model at the top by generating the corporate values with adequate transparency, disclosure and accountability rendering the desired results through good governance. The need for the compliances of the corporate governance has also arisen from certain ongoing issues in newer perspective and challenges confronted in the banking sector due to high expectations by the global investors in striking a balance between the interest of various stakeholders as well as the diversified roles played by the banks in the activities of financial planning, asset management, brokerage, insurance and investment banking. On the international side also, Indian banks could capture the dominant position in the services sector with the relaxation of legal restrictions as the Indian financial markets open up in a phased manner for global competition. This requires the compliances of the corporate governance practices by ensuring the adoption of prudent international norms and standards through an efficient financial reporting, and to achieve higher productivity and profitability levels as a performance measure while serving the societal needs and the value creation for the stakeholders. In this regard also, the Basel Committee has recommended for a new framework in the governance structure which is vital to strengthen the soundness and stability of the banking system maintaining fairness and consistency for wiping out the inequality status among the banks and introduce a new track for capital adequacy (i.e. risk weighted asset approach) to slot in the major modifications of risk management techniques while maintaining the notion of the minimum capital requirements concurrently

Mergers and acquisitions are such dynamic corporate events where all the various permutations and combinations of the moves of the relevant parties and the resulting outcomes cannot be envisioned. For better merger management subject to governance regime of the acquiring bank, the risk of expropriation by the investors could be reduced. Surplus could also be generated in the sense of effective utilization and management of corporate resources that will ensure improved performance of companies after the consolidations take place, it ought to take place within the orderly framework of regulations. It transpires from the above discussion of conceptual issues that for the corporate governance mechanism to be effective, adequate and appropriate, the regulations designed to control the consolidated banking companies under the general set of rules of corporate governance ought to be more expansive in the sense that not only the shareholders but all the stakeholders should be taken care of. This paper explores the headway of corporate governance policies pursued in India for in relation to banks’ restructuring and consistency for wiping out the inequality status with a view to identify the changing trend in such policies in the post-liberalization regime. It also includes the concept of corporate governance in strengthening the soundness and stability of the banking sector, its activities, and the inevitability of such regulations in such a market as also the relevance of corporate governance in monitoring the merger activity. It then, reviews the various policies regarding the different dimensions of corporate governance adopted or recommended in India and hypothesizes the implications of these policies, which might directly or indirectly affect the prevailing characteristics of corporate governance in banks. Finally this manuscript focuses on certain related positive and normative issues of corporate governance, pertaining to the banking arena that might throw some light on the on-going process of scheming of an appropriate code of corporate governance in the merger management in banks.