Corporate governance for private banks in india

S. I. E. S. COLLEGE
OF COMMERCE & ECONOMICS
T.V CHIDAMBARAM MARG,
Mumbai – 400022.
BACHELOR OF COMMERCE
(BANKING AND INSURANCE)
2007 - 2008
Corporate Governance for Private Sector Banks in
India
Project guide:
Name of the Student: Reshamvala Nema Saleem
Seat No:
Name of the coordinator:
Date:

DECLARATION
I, Reshamvala Nema Saleem of S. I. E. S. college of T.Y.B.B.I.
(Semester V) hereby declare that I have completed this project
on CORPORATE GOVERNANCE FOR PRIVATE SECTOR BANKS IN
INDIA in the Academic year 2007-2008. The information
submitted is true and original to the best of my knowledge.
(Signature of the student)

CERTIFICATE
I, Professor AARTHI hereby certify that Reshamvala Nema Saleem of
S. I. E. S. College of T.Y. B.B.I. (Semester V) has completed the project
on corporate governance for private sector banks in India in the
Academic Year 2007 -2008.The information submitted Is true and
original to the best of my knowledge.
_______________
Signature of the Signature of the
Project Co-coordinator Principal
Stamp

ACKNOWLEDGEMENT
I, Reshamvala Nema Saleem, the student of S. I.E.S. pursuing my third
year of Bachelors of Banking & Insurance, would like to extend my
sincere gratitude to all those people who have helped me in the
successful completion of my Project on corporate governance for
private sector banks in India.
I would like to thank all Professors and course coordinator Professor
to whom we shall forever remain indebt for setting the foundation for
this course and for assisting in the project whenever help was required.
I also thank all my colleagues who, through one way or the other
may have helped me in my project.
Lastly special thank to parents for their constant support &
assistance, to make these project worth presenting before you.

SYNOPSIS
Corporate governance provides a systematic guidance to the business world
of India, to help them to carry good corporate practices. These practices deal
with transparency, accountability and the fairness with which business need
to be governed. The concept of corporate governance has been gaining
increasing importance on the backdrop of Global competition and at the
same time it is under close scrutiny of the regulatory bodies in India.
The project begins with underlining the objectives of the study.
The first chapter of the project is the private sector banks in India, which
talks about the meaning of private sector banks. The exclusive list of private
sector banks functioning in India is also given.
Thereafter, it explains the concept of corporate governance, its emergence,
historical perspective, the meaning of term corporate governance and the
need for corporate governance.
Next section deals with the recommendations of some of the prominent
committees formed to look into the corporate governance aspects. Such
committees include Cadbury Committee from England and CII from India.
This project deals with the recommendations of these committees in detail.
The regulatory framework and the legal stipulations that is, the SEBI
Guidelines on corporate governance are explained in the fourth chapter.
The next chapter deals with the enhancing corporate governance practices
for banking organizations recommended by the Basel Committee on
Banking Supervision
The project also explains the recent RBI guidelines on corporate governance
in private sector banks.
The project ends with a case study on CITIGROUP stating its corporate
governance principles and the closure of Citigroup's Private Banking
business in Japan.

INDEX
SR.NO TITLE
1 PRIVATE SECTOR BANKS IN INDIA
2 CONCEPT OF CORPORATE GOVERNANCE
• DEFINATION
• PRINCIPLES
• HISTORY
• EMERGENCE
• PARTIES INVLOVED IN CORPORATE GOVERNANCE
• NEED FOR CORPORATE GOVERNANCE
3 RECOMMENDATIONS OF THE VARIOUS COMMITTES
• CADBURY COMMITTEE ON CORPORATE
GOVERNANCE
• CII – CONFEDERATION OF INDIAN INDUSTRIES
4 LEGAL COMPLAINCE - REGUALTORY FRAMEWORK
• SEBI GUIDELINES
5 ENHANCING CORPORATE GOVERNANCE FOR
BANKING
6 RECENT RBI GUIDELINES FOR PRIVATE SECTOR
BANKS

PRIVATE SECTOR BANKS IN INDIA
Private sector banks are those that are owned and controlled by
private individuals and corporations. Private banks have been in
action in India for a very long time. In July 1969 GOI nationalized
14 banks having deposits of Rs.50crores and above. Again, in 1980,
the government acquired 6 more banks with deposits of more than
Rs.200crores. These two rounds of nationalization were a set
back to the development of banks in the private sector. Not many
private sector banks started operations in India during the period
1969 to 1993.
The amendment to Banking Regulation Act in 1993 paved the way
for entry of new private sector banks and a number of new banks
launched by both industrial and other business houses have
started business in India. However, these banks are also subject
to rules and regulations of RBI and are functioning under its
supervision.

Nearly 25 banks belong to the private sector after nationalization
and these banks are over 50 years old known as Old Private
Sector Banks (OPSB). Some of these are Karur Vysya Bank,
Lakshmi Vilas Bank, Nedungadi bank etc.
A committee was constituted under the chairmanship of M
Narsimham, in the year 1991 and 1998 to examine the structure
and functioning of the existing Indian financial system. Based on
the recommendations of the committee the Government
permitted individuals, corporations, foreign and non-resident
Indians to open private banks with a paid up capital of at least
Rs.100crores. These banks came into existence after 1995 and
are popularly known as New Private Sector Banks. (NPSBs).
IndusIand was the first private sector bank to start operations in
the post liberalization era. Presently there are nine NPSBs
working in India like Global Trust Bank, IndusInd Bank, ICICI
Bank etc

Bharat Overseas Bank Bank of Punjab
City Union Bank HDFC Bank
Development Credit Bank ICICI Bank
Dhanalakshmi Bank IDBI Bank
Lord Krishna Bank Indus Ind Bank
SBI Commercial & International Bank UTI Bank
Tamilnadu Mercantile Bank
The Bank of Rajasthan
The Baneras State Bank
The Catholic Syrian Bank
The Federal Bank
The Ganesh Bank of Kurduwad
The Jammu & Kashmir Bank
The Karnataka Bank
The Karur Vyasya Bank etc.
Private Sector Banks In
India
Old private sector
banks
New private
sector banks

DEFINATION
The term corporate governance has come to mean by two things.
• the processes by which companies are directed and controlled.
• a field in economics, which studies the many issues arising from
the separation of ownership and control.
Relevant rules include applicable laws of the land as well as internal rules of
a corporation. Relationships include those between all related parties, the
most important of which are the owners, managers, directors of the board,
regulatory authorities and to a lesser extent employees and the community at
large. Systems and processes deal with matters such as delegation of
authority.
The corporate governance structure spells out the rules and procedures for
making decisions on corporate affairs. It also provides the structure through
which the company objectives are set, as well as the means of attaining and
monitoring the performance of those objectives.
Corporate governance is used to monitor whether outcomes are in
accordance with plans and to motivate the organisation to be more fully
informed in order to maintain or alter organisational activity. Corporate
governance is the mechanism by which individuals are motivated to align
their actual behaviours with the overall participants.
GOVERNANCE V/S CORPORATE GOVERNANCE
What is Governance: -The term governance is common parlance is used to
mean the way people are governed and the way the affairs of the state are
administered and regulated. This concept, drawn from the public

administration, has received increasingly greater attention in business world
in the sense of direction and control of companies by their top management.
Corporate governance means the idea of ensuring proper management of
companies through the institutions and mechanisms available to the
shareholders. The Cadbury Committee Report (1991) defines corporate
governance as – “A system, by which corporates are directed and
controlled. Corporate governance is a system by which a corporate entity is
directed and controlled in a given economic, political and social
environment. It also entails the interplay between different stakeholders of a
corporation, viz., board of directors, equity holders, debt holders, employees,
customers and government. It deals with how a company fulfills its
obligations to investors and other stakeholders. It is about creating
shareholder wealth while ensuring a fair play to all other stakeholders and
society at large. Stakeholders mean people other than shareholders who have
significant interest in the company. They can be creditors, employees of the
company, government, society etc.
In a company, shareholders are the owners of the company and their
responsibilities lie in selecting the Board of Directors. Board of Directors is
a formal body responsible for the governance of corporate functions. They
review the affairs of the company and direct them.
CORPORATE GOVERNANCE IN INDIAN CONTEXT
In India the concept of corporate governance is gaining importance
because of two reasons.
A) After liberalization, there has been institutionalization of financial
markets, FIs and mutual funds become dominant players in the stock

markets. The market began to discriminate between wealth destroyers.
Corporate governance is a critical byproduct of market discipline.
B) Another factor is the increased role being played by the private sector.
Companies are realizing that shareholders love to stay with those
corporate that create values for their shareholders. This is only possible
by adopting fair, honest and transparent corporate practices.
PRINCIPLES
Key elements of good corporate governance principles include honesty, trust
and integrity, openness, performance orientation, responsibility and
accountability, mutual respect, and commitment to the organisation.
Of importance is how directors and management develop a model of
governance that aligns the values of the corporate participants and then
evaluate this model periodically for its effectiveness. In particular, senior
executives should conduct themselves honestly and ethically, especially
concerning actual or apparent conflicts of interest, and disclosure in financial
reports.
Commonly accepted principles of corporate governance include:
• Rights and equitable treatment of shareholders: Organisations
should respect the rights of shareholders and help shareholders to
exercise those rights. They can help shareholders exercise their rights
by effectively communicating information that is understandable and
accessible and encouraging shareholders to participate in general
meetings.
• Interests of other stakeholders:
Organisations should recognise that they have legal and other obligations
to all legitimate stakeholders.
• Role and responsibilities of the board:
The board needs a range of skills and understanding to be able to deal
with various business issues and have the ability to review and challenge
management performance. It needs to be of sufficient size and have an
appropriate level of commitment to fulfill its responsibilities and duties.
There are issues about the appropriate mix of executive and non-

executive directors. The key roles of chairperson and CEO should not be
held by the same person.
• Integrity and ethical behaviour:
Organisations should develop a code of conduct for their directors and
executives that promotes ethical and responsible decision making.
• Disclosure and transparency:
Organisations should clarify and make publicly known the roles and
responsibilities of board and management to provide shareholders with a
level of accountability. They should also implement procedures to
independently verify and safeguard the integrity of the company's
financial reporting. Disclosure of material matters concerning the
organisation should be timely and balanced to ensure that all investors
have access to clear, factual information.

HISTORICAL PERSPECTIVE OF CORPORATE GOVERNANCE
The seeds of modern Corporate Governance were probably sown by the
Watergate scandal in the United States. As a result of subsequent
investigations, US regulatory and legislative bodies were able to highlight
control failures that had allowed several major corporations to make illegal
political contributions and to bribe government officials. This led to the
development of the Foreign and Corrupt Practices Act of 1977 in USA that
contained specific provisions regarding the establishment, maintenance and
review of systems of internal control.
This was followed in 1979 by the Securities and Exchange Commission of
USA's proposals for mandatory reporting on internal financial controls. In
1985, following a series of high profile business failures in the USA, the
most notable one of which being the Savings and Loan collapse, the
Treadway Commission was formed. Its primary role was to identify the main
causes of misrepresentation in financial reports and to recommend ways of
reducing incidence thereof. The Treadway report published in 1987
highlighted the need for a proper control environment, independent audit
committees and an objective Internal Audit function. It called for published
reports on the effectiveness of internal control. It also requested the
sponsoring organizations to develop an integrated set of internal control
criteria to enable companies to improve their controls.

Accordingly COSO (Committee of Sponsoring Organizations) was born.
The report produced by it in 1992 stipulated a control framework which has
been endorsed and refined in the four subsequent UK reports: Cadbury,
Rutteman, Hampel and Turnbull. While developments in the United States
stimulated debate in the UK, a spate of scandals and collapses in that country
in the late 1980s and early 1990's led shareholders and banks to worry about
their investments. These also led the Government in UK to recognize that the
then existing legislation and self-regulation were not working.
EMERGENCE OF CORPORATE GOVERNANCE
The term Corporate Governance has found importance only since the decade
of the 1980s. It is mainly due to the financial scandals which rocked the UK
in the 1990s, where billions of pounds were lost. Notable cases of the
collapse of corporations were BCCI, Polly Peck and the pension funds of the
Maxwell Communications Group. The focus on the issues of corporate
governance culminated in the Cadbury Report on the financial aspects of
corporate governance in 1992, the Greenbury Report on directors'
remuneration in 1995, the Preliminary and Final Hampel Reports on
corporate governance in 1997 and 1998.
Also countries like South Africa, France, Belgium, Japan and India have
been discussing issues on corporate governance for some time now. In India

the debate on corporate governance has stimulated mainly because of the
work done in this area by the Government of India, the SEBI and the
Confederation of Indian Industry (CIl).
Today the role of the Board of Directors and that of the management
team in running a company, in promoting and safeguarding the interests
of shareholders and other stakeholders, its manner of functioning, the
pattern of remuneration and incentives, the voting procedure and
protocol etc. are receiving a great deal of learned attention as are the
issues of accountability, enterprise and initiative. There has been an
unprecedented growth in international trade and investment. MNCs
today command enormous financial and non-financial resources have a
distinct global presence, enjoy a great deal of economic and political
clout. With the growing focus on liberalization and globalization, Capital
markets, local and global, can be tapped far more easily by companies
that perform satisfactorily.
Studies of firms in India and abroad have shown that markets and investors
take notice of well-managed companies, respond positively to them, and
reward such companies. A common feature of such companies is that the
have systems in place which allow sufficient freedom to boards to take
decisions towards the progress of their companies, while remaining within
the framework of accountability. In other words they have a system of good
corporate governance.

WHO IS INVOLVED IN CORPORATE GOVERNANCE?
THE TRIPOD
Three entities - Management, the board of directors and shareholders play
an important role to ensure good corporate governance. They need to
understand their roles properly and act in harmony with each other.
The Management: The CEO is responsible for actually running the
business. He/she has to ensure the integrity if the fiscal and managerial
controls to maintain a high level of trust of both employees and public.
The Board of Directors: The directors should be accountable to
shareholders and responsible for managing successful and productive
relationships with the corporation's stakeholders. The directors of the board
are required to act in what they believe to be in the best interests of the
company, regardless of specific view expressed by individual (even
controlling) shareholders.
Corporate Governance Tripod
Management Board of Directors Shareholders

The Shareholders: They own the company and they require timely
information about performance and results. The shareholders should also be
informed about the rights, rules and procedures governing them and enabling
them to participate effectively.
NEED FOR CORPORATE GOVERNANCE
 GLOBALIZATION
An efficient tapping of global markets is a critical source of generating value
for owners in most businesses today. The sweeping changes brought about
by globalization include factors like global competition for capital, global
research, international portfolio diversification and convergence of
accounting standards.
Indian companies today realize that there are fewer boundaries in accessing
overseas capital markets. Many companies in India today are seeking a
listing in the other countries. Overseas, investors are accustomed to high
levels of transparency and disclosures in offer documents and shareholder
correspondence such as annual reports.
Corporates, therefore, must have international standards of accounting
practices, disclosure and governance. In doing so, they will reduce risk from
the investor’s perspective, reduce their cost of capital and enhance their
valuation.
Companies and countries are interested in the development of standards and
practices that will be accepted in all the world's major securities markets.
Need of investors and the capital markets are paramount in this.
 CONSOLIDATION
Global consolidation in investment management is a trend that has been
gathering momentum in the nineties. This means that institutions will impose

greater leverage on company management. As information requirements
become larger, they become more complex and the role of investor relations
becomes even more important.
The professional institutions in India are setting up guidelines or codes in
line with international standards. They aim at transparency, accountability
and protection of minority shareholders by issuing proper guidance to the
directors, management and auditors. With this investors will get the same
answer from the balance sheet of an Indian company or that of UK or US.
 COMPETITION
Competitive activity is increasing in most industries. This leads investors to
use more sophisticated valuation methodologies before parting with their
capital. This forces changes in the ways company’s function. They tend to
increase investor-company contact. They also realize the need to do in-house
research to constantly benchmark themselves against competition. A correct
portrayal of this then helps company's image with investors
Further, non-financial factors will become far more significant factors in
understanding the leading indictors of value. They mainly include
environmental friendliness,' Quality of products, service to customers and
employee participation, each crucial for good corporate governance.
The most common financial aspect is employee Stock Option Plans
(ESOPs). Some corporates, mainly in the technology and knowledge based
industries, are introducing ESOPs and revising remuneration packages to
retain their employees in this competitive environment

 TECHNOLOGY
Electronic reporting is taking off with the spread of Internet and improved
communication technologies. By changing information distribution and
content, the electronic provision of information or content, the electronic
provision of information or reporting will become the standard of the future.
This will improve market efficiency and reduce the cost of equity because it
eliminates or reduces uncertainty. The small investor will have a more equal
footing with large investors in terms of access to information. The
enfranchisement of the ultimate owners of capital by allowing them direct
access to the companies in which their capital has been invested will lead to
greater accountability in the governance chain. The web and media shall
make for better information access to the retail investors. The information,
being in the pubic domain will be shared with investors and be available to
anyone anywhere in the world.

RECOMMENDATIONS OF
THE VARIOUS
COMMITTIES

CADBURY COMMITTEE ON CORPORATE GOVERNANCE
The stated objective of Cadbury committee was “to help to raise the
standards of corporate governance and the level of confidence in financial
reporting and auditing by setting out clearly what it sees as the respective
responsibilities those involved in corporate governance”.
The Cadbury committee report published in December 1992 was well
received. While the recommendations themselves were not compulsory, the
companies listed on the London Stock Exchange were required to clearly
state in their accounts whether or not code had been followed. The
companies who did not comply were required to explain the reasons for that.
Recommendations of the Cadbury committee
The Cadbury Code of Best Practices had 19 recommendations. The
recommendations are in the nature of guidelines relating to the Board of
Directors, Non-executive Directors, Executive Directors and those on
Reporting & Control.
• Relating to the Board of Directors these are:
The Board should meet regularly, retain full and effective control over the
company and monitor the executive management.
• There should be a clearly accepted division of responsibilities at the
head of a company, which will ensure balance of power and authority,

such that no individual has unfettered powers of decision. In
companies where the Chairman is also the Chief Executive, it is
essential that there should be a strong and independent element on the
Board, with a recognized senior member.
• The Board should include non-executive Directors of sufficient caliber
and number for their views to carry significant weight in the Board's
decisions.
• The Board should have a formal schedule of matters specifically
reserved to it for decisions to ensure that the direction and control of
the company is firmly in its hands.
• There should be an agreed procedure for Directors in the furtherance
of their duties to take independent professional advice if necessary, at
the company's expense.
• Directors should have access to the advice and services of the
Company Secretary, who is responsible to the Board for ensuring that
Board procedures are followed and that applicable rules and
regulations are complied with. Any question of the removal of
Company Secretary should be a matter for the Board as a whole.
Relating to the Non-executive Directors recommendations are
• Non-executive Directors should bring an independent judgment to
bear on issues of strategy, performance, resources, including key
appointments, and standards of conduct

• The majority should be independent of the management and free from
any business or other relationship, which could materially interfere
with the exercise of their independent judgment, apart from their fees
and shareholding. Their fees should reflect the time, which they
commit to the company.
• Non-executive Directors should be appointed for specified terms and
reappointment should not be automatic.
• Non-executive Directors should be selected through a formal process
and both, this process and their appointment, should be a matter for
the Board as a whole.
For the Executive Directors the recommendations are:
• Directors' service contracts should not exceed three years without
shareholders' approval.
• There should be full and clear disclosure of their total emoluments and
those of the Chairman and the highest-paid Directors, including
pension contributions and stock options. Separate figures should be
given for salary and performance-related elements and the basis on
which performance is measured should be explained.
• Executive Directors' pay should be subject to the recommendations of
a Remuneration Committee made up wholly or mainly of Non-
Executive Directors.

For Reporting and Controls, the Cadbury Code of Best Practices
stipulate that:
• It is the Board's duty to present a balanced and understandable
assessment of the company's position.
• The Board should ensure that an objective and professional
relationship is maintained with the Auditors.
• The Board should establish an Audit Committee of at least 3 Non-
Executive Directors with written terms of reference, which deal
clearly with its authority and duties.
• The Directors should explain their responsibility for preparing the
accounts next to a statement by the Auditors about their reporting
responsibilities.
• The Directors should report on the effectiveness of the company's
system of internal control.
• The Directors should report that the business is a going concern, with
supporting assumptions or qualifications as necessary.

CII- Confederation of Indian Industries
In 1996, CII took a special initiative on Corporate Governance – the first
institutional initiative in Indian industry. The objective was to develop and
promote a code for Corporate Governance to be adopted and followed by
Indian companies, be these in the Private Sector, the Public Sector, Banks or
Financial Institutions, all of which are corporate entities.
The Important Recommendations made by committee formed by CII are as
follows:
Board of Directors
The key to good corporate governance is a well functioning, informed board
of directors. The board should have a core group of excellent, professionally
acclaimed non-executive directors who understand their dual role of
appreciating the issues put forward by management, and of honestly
discharging their fiduciary responsibilities towards the company’s
shareholders as well as creditors.
Recommendation 1: Single Tier System
There is no need to adopt the German system of two-tier boards to ensure
desirable corporate governance. A single board, if it performs well, can
maximize long-term shareholder value just as well as a two- or multi-tiered

board. Equally, there is nothing to suggest that a two-tier board, per se, is the
panacea to all corporate problems.
Recommendation 2: Appointment Of Non-Executive Directors
Any listed companies with a turnover of Rs.100crores and above should
have professionally competent, independent, non-executive directors, who
should constitute
• At least 30 percent of the board if the Chairman of the company is a non-
executive director, or
• At least 50 percent of the board if the Chairman and Managing Director is
the same person.
Recommendation 3 : Cap On Directorship
No single person should hold directorships in more than 10 listed companies.
This ceiling excludes directorships in subsidiaries (where group has over
50% equity stake) or associate companies (where group has over 25% but
not more than 50% equity stake )
Recommendation 4: Role Of Non-Executive Directors
For non-executive directors to play a material role in corporate decision-
making and maximizing long-term shareholder value, they need to
• Become active participants in boards, not passive advisors;
• Have clearly defined responsibilities within the board such as the Audit
Committee; and
• Know how to read a balance sheet, profit and loss account, cash flow
statements and financial ratios and have some knowledge of various
company laws. This, of course, excludes those who are invited to join boards
as experts in other fields such as science and technology.

Recommendation 5: Key information that must be reported to and
placed before the board must contain:
• Annual operating plans and budgets, together with up-dated long term
plans.
• Capital budgets, manpower and overhead budgets.
• Quarterly results for the company as a whole and its operating divisions
or business segments.
• Internal audit reports, including cases of theft and dishonesty of a material
nature.
• Show cause, demand and prosecution notices received from revenue
authorities, which are considered to be materially important. (Material nature
is any exposure that exceeds 1 percent of the company’s net worth).
• Fatal or serious accidents, dangerous occurrences, and any effluent or
pollution problems.
• Quarterly details of foreign exchange exposure and the steps taken by
management to limit the risks of adverse exchange rate movement, if
material.
Recommendation 6 : Setting Up Of Audit Committee
• Listed companies with either a turnover of over Rs.100crores or a
paid-up capital of Rs.20crores should set up Audit Committees within
two years.
• Audit Committees should consist of at least three members, all drawn
from a company’s non-executive directors, who should have adequate
knowledge of finance, accounts and basic elements of company law.

REGULATORY FRAMEWORK:
LEGAL COMPLAINCE

SEBI Guidelines On Corporate Governance
Board Of Directors :
i. The Non-executive Directors on board should not be less than fifty
percent of the Board of Directors, Or
ii. In case of a non-executive chairman, at least one-third of board should
comprise of independent directors.
iii. A director shall not be a member in more than 10 committees or act as
Chairman of more than 5 committees.
Audit Committee:
A. Set Up Of Audit Committee
Minimum of three members -all being Non-executive Directors.
Majority of the members to be independent.
One member must have financial and accounting knowledge
Chairman of the committee shall be an independent Director.
B. Functioning Of Audit Committee
Audit committee shall meet at least thrice a year.
One meeting to be held before finalization of Annual Account’s.
Other two meeting should be held at interval of 6 months.
C. Power Of Audit Committee
To investigate any activity within its terms of reference.
To seek information from any employee.
Remuneration Of Directors
Remuneration of non-executive directors to be decided by the Board of
Directors.

Board procedure
i. The Board meeting to be held at least four times a year.
ii. The difference of two Board meeting should not be more than four
months.
Management
The Directors report and the Management Discussions and Analysis report
should contain information on following matters
i. Industry structure and developments.
ii. Opportunities and Threats.
iii. Outlook.
iv. Risk and concerns.
Shareholders
• The shareholders are to be provided following information before
appointment of a new director or re-appointment of a director.
i. Brief resume of the director.
ii. Nature of his expertise in specific functional areas; and
iii. Names of companies in which the person also holds the directorship
and the membership of Committees of the board.
• Quarterly results, presentation etc. made by companies to analysts
shall be put on company's web site.
• A committee under the name "Shareholders/ Investors Grievances
Committee" to be set up to specifically look into the redressing of
shareholder and investors complaints.
Report On Corporate Governance
There shall be a separate section on corporate governance in annual report of
the company. The suggested list of items to be included in this report is
given as follows:
A brief statement of company’s philosophy on code of governance

Board Of Directors
Composition and category of directors, for example, promoter, executive,
non-executive, nominee
Attendance of each director at board meetings and at the AGM
Number of board meetings held and dates on which held
Audit Committee
Composition, name of members, and chairperson
Meeting and attendance during meeting
Remuneration Committee
Composition, name of members, and chairperson
Attendance during meeting
Remuneration policy
Shareholders Committee
Number of Shareholders’ complaints received so far
Number of pending share transfers

ENHANCING
CORPORATE GOVERNANCE
FOR
BANKING ORGANISATIONS

INTRODUCTION
Banking supervision cannot function if sound corporate governance is not in
place and, consequently, banking supervisors have a strong interest in
ensuring that there is effective corporate governance at every banking
organization. Supervisory experience underscores the necessity of having the
appropriate levels of accountability and checks and balances within each
bank. Put plainly, sound corporate governance makes the work of
supervisors infinitely easier. Sound corporate governance can contribute to a
collaborative working relationship between bank management and bank
supervisors.
Recent sound practice papers issued by the Basel Committee underscore the
need for banks to set strategies for their operations and establish
accountability for executing these strategies. In addition, transparency of
information related to existing conditions, decisions and actions is integrally
related to accountability in that it gives market participants sufficient
information with which to judge the management of a bank.
This guidance refers to a management structure composed of a board of
directors and senior management. The Committee recognizes that there are
significant differences in the legislative and regulatory frameworks across
countries as regards the functions of the board of directors and senior
management. In some cases, it is known as a supervisory board. This means
that the board has no executive functions. In other countries, by contrast, the
board has a broader competence in that it lays down the general framework

for the management of the bank. Owing to these differences, the notions of
board of directors and senior management are used in this paper not to
identify legal constructs but rather to label two decision-making functions
within a bank. These approaches to boards of directors and senior
management are sometimes referred to as corporate governance "structures"
in this paper.
The Basel Committee is issuing this paper to supervisory authorities
worldwide in the belief that it will assist supervisors in promoting the
adoption of sound corporate governance practices by banking organizations
in their countries. Recognizing that different structural approaches to
corporate governance exist across countries, this paper encourages practices
which can strengthen corporate governance under diverse structures.
Corporate Governance in Relation to Commercial Banks
Banks are a critical component of any economy. They provide financing for
commercial enterprises, basic financial services to a broad segment of the
population and access to payments systems. In addition, some banks are
expected to make credit and liquidity available in difficult market conditions.
The importance of banks to national economies is underscored by the fact
that banking is virtually universally a regulated industry and that banks have
access to government safety nets. It is of crucial importance therefore that
banks have strong corporate governance.
From a banking industry perspective, corporate governance involves the
manner in which the business and affairs of individual institutions are

governed by their boards of directors and senior management, affecting how
banks:
• Set corporate objectives (including generating economic returns to
owners);
• Run the day-to-day operations of the business;
• Consider the interests of recognized stakeholders;
• Protect the interests of depositors
The Basel Committee has issued several papers on specific topics, where the
importance of corporate governance is emphasized. These include
Principles for the management of interest rate risk (September 1997),
Framework for internal control systems in banking organizations
(September 1998), Enhancing bank transparency (September 1998), and
Principles for the management of credit risk (issued as a consultative
document in July 1999). These papers have highlighted the fact that
strategies and techniques that are basic to sound corporate governance
include:
["Stakeholders" include employees, customers, suppliers and the
community. Due to the unique role of banks in national and local economies
and financial systems, supervisors and governments are also stakeholders.]
The corporate values, codes of conduct and other standards of appropriate
behavior and the system used to ensure compliance with them;
• The clear assignment of responsibilities and decision-making
authorities, incorporating a hierarchy of required approvals from
individuals to the board of directors
• Establishment of a mechanism for the interaction and cooperation
among the board of directors, senior management and the auditors;
• Strong internal control systems, including internal and external audit

functions, risk management functions independent of business lines,
and other checks and balances;
• Special monitoring of risk exposures where conflicts of interest are
likely to be particularly great, including business relationships with
borrowers affiliated with the bank, large shareholders, senior
management, or key decision-makers within the firm (e.g. traders);
• The financial and managerial incentives to act in an appropriate
manner offered to senior management, business line management and
employees in the form of compensation, promotion and other
recognition; and
• Appropriate information flows internally and to the public.
Ensuring an environment supportive of Sound Corporate Governance
The Basel Committee recognizes that primary responsibility for good
corporate governance rests with boards of directors and senior management
of banks; however, there are many other ways that corporate governance can
be promoted, including by:
• Government - through laws;
• Securities regulators, stock exchanges - through disclosure and
listing requirements;
• Auditors - through audit standards on communications to boards of
directors, senior management and supervisors; and
• Banking industry associations - through initiatives related to
voluntary industry principles and agreement on and publication of
sound practices.
For example, corporate governance can be improved by addressing a number
of legal issues, such as the protection of shareholder rights; the enforceability

of contracts, including those with service providers; clarifying governance
roles; ensuring that corporations function in an environment that is free from
corruption and bribery; and laws/regulations (and other measures) aligning
the interests of managers, employees and shareholders. All of these can help
promote healthy business and legal environments that support sound
corporate governance and related supervisory initiatives.
The Role of Supervisors
Supervisors should be aware of the importance of corporate governance and
its impact on corporate performance. They should expect banks to
implement organizational structures that include the appropriate checks and
balances. Regulatory safeguards must emphasize accountability and
transparency. Supervisors should determine that the boards and senior
management of individual institutions have in place processes that ensure
they are fulfilling all of their duties and responsibilities.
A bank's board of directors and senior management are ultimately
responsible for the performance of the bank. As such, supervisors typically
check to ensure that a bank is being properly governed and bring to
management's attention any problems that they detect through their
supervisory efforts. When the bank takes risks that it cannot measure or
control, supervisors must hold the board of directors accountable and require
that corrective measures be taken in a timely manner. Supervisors should be
attentive to any warning signs of deterioration in the management of the
bank's activities. Sound corporate governance considers the interests of all
stakeholders, including depositors, whose interests may not always be
recognized. Therefore, it is necessary for supervisors to determine that
individual banks are conducting their business in such a way as not to harm

depositors.
RBI GUIDELINES
ON
CORPORATE GOVERNANCE
FOR
PRIVATE SECTOR BANKS

RBI Guidelines Governance in Private Sector Banks
INTRODUCTION
Banks are “special” as they not only accept and deploy large amount of un-
collateralized public funds in fiduciary capacity, but they also leverage such
funds through credit creation. The banks are also important for smooth
functioning of the payment system. In view of the above, legal prescriptions
for ownership and governance of banks laid down in Banking Regulation
Act, 1949 have been supplemented by regulatory prescriptions issued by
RBI from time to time.
On July 2, 2004, RBI issued draft guidelines on ownership and governance
in private sector banks in India. These guidelines were placed in the public
domain for wider debate and feedback. The RBI issued final policy
guidelines on 28th
February 2005 after taking into account the feedback
received. It is considered necessary to lay down a comprehensive framework
of policy in a transparent manner relating to corporate governance in the
Indian private sector banks as described below. The broad principles
underlying the framework of policy relating to corporate governance of
private sector banks would have to ensure that
(i) The ultimate ownership and control of private sector banks is well
diversified. Well-diversified ownership minimizes the risk of misuse or
imprudent use of leveraged funds , it is no substitute for effective regulation.
(ii) The directors and the CEO who manage the affairs of the bank are ‘fit
and proper’ as indicated in circular dated June 25, 2004 and observe sound
corporate governance principles.
(iii) Private sector banks have minimum capital/net worth for optimal

operations and systemic stability.
(iv)The policy and the processes are transparent and fair.
• Minimum capital
The capital requirement of existing private sector banks should be on par
with the entry capital requirement for new private sector banks prescribed in
RBI guidelines of January 3, 2001, which is initially Rs.200crore, with a
commitment to increase to Rs.300crore within three years. In order to meet
with this requirement, all banks in private sector should have a net worth of
Rs.300crore at all times. The banks which are yet to achieve the required
level of net worth will have to submit a time-bound programme for capital
augmentation to RBI. Where the net worth declines to a level below
Rs.300crore, it should be restored to Rs.300crore within a reasonable time.
• Shareholding
(i) The RBI guidelines on acknowledgement for acquisition or transfer of
shares issued on February 3, 2004 will be applicable for any acquisition of
shares of 5 per cent and above of the paid up capital of the private sector
bank.
(ii) In the interest of diversified ownership of banks, the objective will be to
ensure that no single entity or group of related entities has shareholding or
control, directly or indirectly, in any bank in excess of 10 per cent of the paid
up capital of the private sector bank. Any higher level of acquisition will be
with the prior approval of RBI and in accordance with the guidelines of
February 3, 2004 for grant of acknowledgement for acquisition of shares.
(iii) Where ownership is that of a corporate entity, the objective will be to

ensure that no single individual/entity has ownership and control in excess of
10 per cent of that entity. Where the ownership is that of a financial entity
the objective will be to ensure that it is a well established regulated entity,
widely held, publicly listed and enjoys good standing in the financial
community.
(iv) Banks (including foreign banks having branch presence in India)/FIs
should not acquire any fresh stake in a bank’s equity shares, if by such
acquisition, the investing bank’s/FI’s holding exceeds 5 per cent of the
investee bank’s equity capital as indicated in RBI circular dated July 6, 2004.
(v) As per existing policy, large industrial houses will be allowed to acquire,
by way of strategic investment, shares not exceeding 10 per cent of the paid
up capital of the bank subject to RBI’s prior approval. Furthermore, such a
limitation will also be considered if appropriate, in regard to important
shareholders with other commercial affiliations.
(vi)In case of restructuring of problem/weak banks or in the interest of
consolidation in the banking sector, RBI may permit a higher level of
shareholding, including by a bank.
• Directors and Corporate Governance
(i) The recommendations of the Ganguly Committee on corporate
governance in banks have highlighted the role envisaged for the Board of
Directors.
The Board of Directors should ensure that the responsibilities of directors are
well defined and the banks should arrange need-based training for the
directors in this regard. While the respective entities should perform the roles
envisaged for them, private sector banks will be required to ensure that the
directors on their Boards representing specific sectors as provided under the
Banking Regulation Act, are indeed representatives of those sectors in a
demonstrable fashion, they fulfill the criteria under corporate governance

norms provided by the Ganguly Committee and they also fulfill the criteria
applicable for determining ‘fit and proper’ status of Important Shareholders
(i.e., shareholding of 5 per cent and above) as laid down in RBI Circular
dated June 25, 2004.
(ii) As a matter of desirable practice, not more than one member of a family
or a close relative (as defined under Section 6 of the Companies Act, 1956)
or an associate (partner, employee, director, etc.) should be on the Board of a
bank.
(iii) Guidelines have been provided in respect of 'Fit and Proper' criteria for
directors of banks by RBI circular dated June 25, 2004 in accordance with
the recommendations of the Ganguly Committee on Corporate Governance.
For this purpose a declaration and undertaking is required to be obtained
from the proposed / existing directors
(iv)Being a Director, the CEO should satisfy the requirements of the ‘fit and
proper’ criteria applicable for directors. In addition, RBI may apply any
additional requirements for the Chairman and CEO. The banks will be
required to provide all information that may be required while making an
application to RBI for approval of appointment of Chairman/CEO
• Due diligence process
The process of due diligence in all cases of shareholders and directors will
involve reference to the relevant regulator, revenue authorities, investigation
agencies and independent credit reference agencies as considered
appropriate.
• Transition arrangements
(i) The current minimum capital requirements for entry of new banks is
Rs.200crore to be increased to Rs.300crore within three years of

commencement of business. A few private sector banks that have been in
existence before these capital requirements were prescribed have less than
Rs.200crore net worth. In the interest of having sufficient minimum size for
financial stability, all the existing private banks should also be able to fulfill
the minimum net worth requirement of Rs.300crore required for a new entry.
Hence any bank with net worth below this level will be required to submit a
time bound programme for capital augmentation to RBI for approval.
(ii) Where any existing shareholding of any individual entity/group of
entities is 5 per cent and above, due diligence outlined in the February 3,
2004 guidelines will be undertaken to ensure fulfillment of ‘fit and proper’
criteria.
(iii) Where any existing shareholding by any individual entity/group of
related entities is in excess of 10 per cent, the bank will be required to
indicate a time table for reduction of holding to the permissible level. While
considering such cases, RBI will also take into account the terms and
conditions of the banking licenses.
(iv) Any bank having shareholding in excess of 5 per cent in any other bank
in India will be required to indicate a time bound plan for reduction in such
investments to the permissible limit. The parent of any foreign bank having
presence in India, having shareholding directly or indirectly through any
other entity in the banking group in excess of 5 per cent in any other bank in
India will be similarly required to indicate a time bound plan for reduction of
such holding to 5 per cent.
(v) Banks will be required to undertake due diligence before appointment of
directors and Chairman/CEO on the basis of criteria that will be separately
indicated and provide all the necessary certifications/information to RBI.
(vi) Banks having more than one member of a family, or close relatives or
associates on the Board will be required to ensure compliance with these
requirements at the time of considering any induction or renewal of terms of

such directors.
(vii) Action plans submitted by private sector banks outlining the milestones
for compliance with the various requirements for ownership and governance
will be examined by RBI for consideration and approval.
• Continuous monitoring arrangements
(i) Where RBI acknowledgement has already been obtained for transfer of
shares of 5 per cent and above, it will be the bank’s responsibility to ensure
continuing compliance of the ‘fit and proper’ criteria and provide an annual
certificate to the RBI of having undertaken such continuing due diligence.
(ii) Similar continuing due diligence on compliance with the ‘fit and proper’
criteria for directors/CEO of the bank will have to be undertaken by the bank
and certified to RBI annually.
(iii) RBI may, when considered necessary, undertake independent
verification of ‘fit and proper’ test conducted by banks through a process of
due diligence.

CITIGROUP INC.
CORPORATE GOVERNANCE GUIDELINES
As of January20, 2007
Corporate Governance Mission
Citigroup Inc. (the “Company”) aspires to the highest standards of ethical
Conduct: doing what we say; reporting results with accuracy and
transparency; and maintaining full compliance with the laws, rules and
regulations that govern the Company’s businesses.
• Board of Directors
The Board of Directors’ primary responsibility is to provide effective
governance over the Company’s affairs for the benefit of its stockholders,
and to balance the interests of its diverse constituencies around the world,
including its customers, employees, suppliers and local communities. In all
actions taken by the Board, the Directors are expected to exercise their
business judgment in what they reasonably believe to be the best interests of
the Company. In discharging that obligation, Directors may rely on the
honesty and integrity of the Company’s senior executives and its outside
advisors and auditors.
• Number and Selection of Board Members
The Board has the authority under the by-laws to set the number of
Directors, which should be in the range of 13 to 19, with the flexibility to
increase the number of members in order to accommodate the availability of
an outstanding candidate or the Board’s changing needs and circumstances.
The Board may also appoint honorary directors. Honorary directors are
invited to Board meetings, but do not vote on issues presented to the Board.
Candidates for the Board shall be selected by the Nomination and
Governance Committee, and recommended to the Board of Directors for
approval, in accordance with the qualifications approved by the Board and
set forth below, taking into consideration the overall composition and
diversity of the Board and areas of expertise that new Board members might
be able to offer. Directors are elected by the stockholders at each Annual
Meeting, to serve for a one-year term, which expires on the date of the next

Annual Meeting. Between Annual Meetings, the Board may elect additional
Directors by majority vote to serve until the next Annual Meeting. The
Nomination and Governance Committee shall nominate annually one of the
members of the Board to serve as Chairman of the Board.
• Confidential Voting Policy
It is the Company’s policy that every stockholder shall have the right to
require the Company to keep his or her vote confidential, whether submitted
by proxy, ballot, internet voting, telephone voting or otherwise. If a
stockholder elects, in connection with any decision to be voted on by
stockholders at any Annual or
Special Meeting, to keep his or her vote confidential, such vote shall be kept
permanently confidential and shall not be disclosed to the Company, to its
affiliates, directors, officers and employees or to any third parties except:
(a) As necessary to meet applicable legal requirements and to assert or
defend claims for or against the Company,
(b) In case of a contested proxy solicitation,
(c) If a stockholder makes a written comment on the proxy card or
otherwise communicates his or her vote to management, or
(d) To allow the independent inspectors of election to certify the results
of the vote. Employee stockholders in the Citigroup Common Stock
Fund under the plan or one of the Company’s retirement, savings or
employee stock ownership plans already enjoy confidential treatment
as required by law and, without the need for any action on their parts,
will continue to vote their shares confidentially.
• Director Independence
At least two-thirds of the members of the Board should be independent. The
Board has adopted the Director Independence Standards to assist the Board
in making the independence determination. The Director Independence
Standards are intended to comply with the New York Stock Exchange
(“NYSE”) corporate governance rules and all other applicable laws, rules
and regulations regarding director independence in effect from time to time.
A Director shall qualify as independent for purposes of service on the Board
of the Company and its Committees if the Board has determined that the
Director has no material relationship with the Company.

• Qualifications for Director Candidates
One of the of the Board's most important responsibilities is identifying,
evaluating and selecting candidates for the Board of Directors. The
Nomination and Governance Committee reviews the qualifications of
potential director candidates and makes recommendations to the whole
Board. The factors considered by the Committee and the Board in its review
of potential candidates include:
• Whether the candidate has exhibited behavior that indicates he or she is
committed to the highest ethical standards and Shared Responsibilities.
• Whether the candidate has had business, governmental, non-profit or
professional experience at the Chairman, Chief Executive Officer, Chief
Operating Officer or equivalent policy-making and operational level of a
large organization with significant international activities that indicates that
the candidate will be able to make a meaningful and immediate contribution
to the Board's discussion of and decision-making on the array of complex
issues facing a large financial services business that operates on a global
scale.
• Whether the candidate has special skills, expertise and background that
would complement the attributes of the existing Directors, taking into
consideration the diverse communities and geographies in which the
Company operates.
• Whether the candidate has the financial expertise required to provide
effective oversight of a diversified financial services business that operates
on a global scale.
• Whether the candidate has achieved prominence in his or her business,
governmental or professional activities, and has built a reputation that
demonstrates the ability to make the kind of important and sensitive
judgments that the Board is called upon to make.
• Whether the candidate will effectively, consistently and appropriately take
into account and balance the legitimate interests and concerns of all of the
Company’s stockholders and our other stakeholders in reaching decisions,
rather than advancing the interests of a particular constituency.
• Whether the candidate possesses a willingness to challenge management
while working constructively as part of a team in an environment of
collegiality and trust.

• Whether the candidate will be able to devote sufficient time and energy to
the performance of his or her duties as a Director. Application of these
factors involves the exercise of judgment by the Board.
• Lead Director
The Board may appoint a Lead Director. The Lead Director shall: (i) preside
at all meetings of the Board at which the Chairman is not present, including
executive sessions of the independent Directors;
(ii) Serve as liaison between the Chairman and the independent Directors;
(iii) Approve information sent to the Board;
(iv)Approve meeting agendas for the Board;
(v) Approve meeting schedules to assure that there is sufficient time for
discussion of all agenda items;
(vi)Have the authority to call meetings of the independent Directors; and
(vii) If requested by major shareholders, ensure that he or she is available for
consultation and direct communication.
• Additional Board Service
The number of other public company boards on which a Director may serve
shall be subject to a case-by-case review by the Nomination and Governance
Committee, in order to ensure that each Director is able to devote sufficient
time to perform his or her duties as a Director.
Members of the Audit and Risk Management Committee may not serve on
more than three public company audit committees, including the Audit and
Risk Management Committee of the Company
• Interlocking Directorates
No inside Director or executive officer of Citigroup shall serve as a director
of a company where a Citigroup outside Director is an executive officer.
• Stock Ownership Commitment
The Board and members of senior management are subject to the Stock
Ownership Commitment, which provides that for so long as they remain
members of the Board or senior management, they shall hold at least 75% of

the shares of Company common stock they own on the date they become
subject to the commitment and 75% of the net shares delivered to them
pursuant to awards granted under the Company’s equity programs, once
certain minimum guidelines have been met, subject to the provisions
contained in the commitment.
For purposes of these guidelines, the term “members of senior management”
shall mean members of the Operating Committee, members of the
Management Committee, members of the Business Planning Groups and
senior members of corporate staff as disclosed in the Company’s annual
report.
In 2005, the Company introduced an expanded version of the Stock
Ownership Commitment, with a 25% holding requirement that applies
prospectively and generally covers those employees who report directly to a
member of the Management Committee and those employees one level
below them. After the expansion of the Stock Ownership Commitment
becomes effective in 2006, approximately 3,000 employees around the
world will be subject to the Stock Ownership Commitment. Exceptions to
the Stock Ownership Commitment include gifts to charity, estate-planning
transactions, transactions with the Company in connection with exercising
employee stock options or paying withholding taxes under equity
compensation programs, and certain other circumstances.
• Retirement from the Board/Term Limits
Directors may serve on the Board until the Annual Meeting of the Company
next following their 72nd birthday, and may not be re- elected after
reaching age 72, unless this requirement has been waived by the Board for a
valid reason. The
Company has not adopted term limits for Directors.
• Director Elections
If a nominee who has been nominated by the Board of Directors receives, in
an uncontested election, a number of votes “withheld” from his or her
election that is greater than the number of votes cast “for” the election of the
Director, such Director shall offer to resign from his or her position as a
Director. Unless the Board decides to reject the offer or to postpone the
effective date of the offer, the resignation shall become effective 60 days
after the date of the election. In making a determination whether to reject the

offer or postpone the effective date, the Board of Directors shall consider all
factors it considers relevant to the best interests of the Company. If the
Board rejects the resignation or postpones its effective date, it shall issue a
public statement that discloses the reason for its decision.
• Board Committees
The standing committees of the Board are the Executive Committee, the
Audit and Risk Management Committee, the Personnel and Compensation
Committee, the Nomination and Governance Committee and the Public
Affairs Committee.
All members of these committees, other than the Executive Committee, shall
meet the independence criteria, as determined by the Board, set forth in the
NYSE corporate governance rules, and all other applicable laws, rules or
regulations regarding director independence. Committee members shall be
appointed by the Board upon recommendation of the Nomination and
Governance Committee, after consultation with the individual Directors.
Committee chairs and members shall be rotated at the recommendation of
the Nomination and Governance Committee. Each committee shall have its
own written charter which shall comply with the applicable NYSE corporate
governance rules, and other applicable laws, rules and regulations. The
charters shall set forth the mission and responsibilities of the committees as
well as qualifications for committee membership, procedures for committee
member appointment and removal, committee structure and operations and
reporting to the Board.
The Chair of each committee, in consultation with the committee members,
shall determine the frequency and length of the committee meetings
consistent with any requirements set forth in the committee’s charter. The
Chair of each committee, in consultation with the appropriate members of
the committee and senior management, shall develop the committee’s
agenda. At the beginning of the year, each committee shall establish a
schedule of major topics to be discussed during the year (to the degree these
can be foreseen). The agenda for each committee meeting shall be furnished
to all Directors in advance of the meeting, and each independent Director
may attend any meeting of any committee, whether or not he or she is a
member of that committee. The Board and each committee shall have the
power to hire and fire independent legal, financial or other advisors, as they
may deem necessary, without consulting or obtaining the approval of senior

management of the Company in advance. The Board may, from time to
time, establish or maintain additional committees as necessary or
appropriate.
• Evaluation of Board Performance
The Nomination and Governance Committee shall conduct an annual review
of Board performance, in accordance with guidelines recommended by the
Committee and approved by the Board. This review shall include an
overview of the talent base of the Board as a whole as well as an individual
assessment of each outside Director’s qualification as independent under the
NYSE corporate governance rules and all other applicable laws, rules and
regulations regarding director independence; consideration of any changes in
a Director’s responsibilities that may have occurred since the Director was
first elected to the Board; and such other factors as may be determined by
the Committee to be appropriate for review. Each of the standing
committees (except the Executive Committee) shall conduct an annual
evaluation of its own performance as provided in its charter. The results of
the Board and committee evaluations shall be summarized and presented to
the Board.
• Attendance at Meetings
Directors are expected to attend the Company’s Annual Meeting of
Stockholders, Board meetings and meetings of committees and
subcommittees on which they serve, and to spend the time needed and meet
as frequently as necessary to properly discharge their responsibilities.
Information and materials that are important to the Board’s understanding of
the business to be conducted at a Board or committee meeting should be
distributed to the Directors prior to the meeting, in order to provide time for
review. The Chairman should establish a calendar of standard agenda items
to be discussed at each meeting scheduled to be held over the course of the
ensuing year, and, together with the Lead Director, shall establish the agenda
for each Board meeting. Each Board member is free to suggest items for
inclusion on the agenda or to raise subjects that are not on the agenda for
that meeting. The non-management Directors shall meet in executive session
at each Board meeting. The Lead Director shall preside at the executive
sessions.

• Annual Strategic Review
The Board shall review the Company’s long-term strategic plans and the
principal issues that it expects the Company may face in the future during at
least one Board meeting each year.
• Communications
The Board believes that senior management speaks for the Company.
Individual Board members may, from time to time, meet or otherwise
communicate with various constituencies that are involved with the
Company, at the request of the Board or senior management.
• Director Access to Senior Management
Directors shall have full and free access to senior management and other
employees of the Company. Any meetings or contacts that a Director wishes
to initiate may be arranged through the CEO or the Secretary or directly by
the Director. The Board welcomes regular attendance at each Board meeting
by senior management of the Company. If the CEO wishes to have
additional Company personnel attendees on a regular basis, this suggestion
should be brought to the Board for approval.
• Charitable Contributions
If a Director or an immediate family member of a Director serves as a
director, trustee or executive officer of a foundation, university or other non-
profit organization (“Charitable Organization”) and such Charitable
Organization receives contributions from the Company and/or the Citigroup
Foundation, such contributions will be reported to the Nomination and
Governance Committee at least annually.
• Director Orientation and Continuing Education
The Company shall provide an orientation program for new Directors which
shall include presentations by senior management on the Company’s
strategic plans, its significant financial, accounting and risk management
issues, its compliance programs, its Code of Conduct, its management

structure and executive officers and its internal and independent auditors.
The orientation program may also include visits to certain of the Company’s
significant facilities, to the extent practical. The Company shall also make
available continuing education programs for all members of the Board. All
Directors are invited to participate in the orientation and continuing
education programs.
• Chairman and CEO Performance
The Personnel and Compensation Committee shall conduct an annual review
of the Chairman’s and the CEO’s performance. The Board of Directors shall
review the Personnel and Compensation Committee’s report in order to
ensure that the Chairman and the CEO are providing the best leadership for
the Company in the long and short term.
• Succession Planning
The Personnel and Compensation Committee, or a subcommittee thereof,
shall make an annual report to the Board on succession planning. The entire
Board shall work with the Personnel and Compensation Committee, or a
subcommittee thereof, to nominate and evaluate potential successors to the
CEO. The CEO shall meet periodically with the Personnel and
Compensation Committee in order to make available his or her
recommendations and evaluations of potential successors, along with a
review of any development plans recommended for such individuals.
Code of Conduct and Code of Ethics for Financial
• Professionals
The Company has adopted a Code of Conduct and other internal policies and
guidelines designed to support the mission statement set forth above and to
comply with the laws, rules and regulations that govern the Company’s
business operations. The Code of Conduct applies to all employees of the
Company and its subsidiaries, as well as to Directors, temporary workers
and other independent contractors and consultants when engaged by or
otherwise representing the Company and its interests. In addition, the
Company has adopted a Code of Ethics for Financial Professionals, which

applies to the principal executive officers of the Company and its reporting
subsidiaries and all professionals worldwide serving in a finance,
accounting, treasury, tax or investor relations role. The Nomination and
Governance Committee shall monitor compliance with the Code of Conduct,
the Code of Ethics for Financial Professionals and other internal policies and
guidelines.
• Recoupment of Unearned Compensation
If the Board learns of any misconduct by an executive officer that
contributed to the Company having to restate all or a portion of its financial
statements, it shall take such action as it deems necessary to remedy the
misconduct, prevent its recurrence and, if appropriate, based on all relevant
facts and circumstances, punish the wrongdoer in a manner it deems
appropriate. In determining what remedies to pursue, the Board shall take
into account all relevant factors, including whether the restatement was the
result of negligent, intentional or gross misconduct. The Board will, to the
full extent permitted by governing law, in all appropriate cases, require
reimbursement of any bonus or incentive compensation awarded to an
executive officer or effect the cancellation of unvested restricted or deferred
stock awards previously granted to the executive officer if:
• The amount of the bonus or incentive compensation was calculated
based upon the achievement of certain financial results that were
subsequently the subject of a restatement,
• The executive engaged in intentional misconduct that caused or
partially caused the need for the restatement, and
• The amount of the bonus or incentive compensation that would have
been awarded to the executive had the financial results been properly
reported would have been lower than the amount actually awarded.
• Insider Transactions
The Company does not generally purchase Company common stock from
employees (except in connection with the routine administration of
employee stock option and other equity compensation programs). Directors
and executive officers may not trade shares of Company common stock
during an administrative “blackout” period affecting the Company’s 401(k)
plan or pension plan pursuant to which a majority of the Company’s

employees are restricted from trading shares of Company common stock or
transferring funds into or out of the Company common stock fund, subject to
any legal or regulatory restrictions and the terms of the Company’s Personal
Trading Policy.
• Stock Options
The Company prohibits the re-pricing of stock options. All new equity
compensation plans and material revisions to such plans shall be submitted
to stockholders for approval.
• Financial Services
To the extent ordinary course services, including brokerage services,
banking services, loans, insurance services and other financial services,
provided by the Company to any Director or family member of a Director,
are not otherwise specifically prohibited under these Corporate Governance
Guidelines or other policies of the Company, or by law or regulation, such
services shall be provided on substantially the same terms as those
prevailing at the time for comparable services provided to non-affiliates.
• Personal Loans
Personal loans may be made or maintained by the Company to a Director, an
executive officer (designated as such pursuant to Section 16 of the Securities
Exchange Act of 1934), or a member of the Operating Committee, or an
immediate family member of any such person, only if the loan:
(a) Is made in the ordinary course of business of the Company or one of
its subsidiaries, is of a type that is generally made available to the
public, and is on market terms, or terms that are no more favorable
than those offered to the general public;
(b) Complies with applicable law, including the Sarbanes Oxley Act of
2002 and Regulation of the Board of Governors of the Federal
Reserve;
(c) When made does not involve more than the normal risk of
collectibility or present other unfavorable features; and
(d) Is not classified by the Company as Substandard (II) or worse, as
defined by the Office of the Comptroller of the Currency (OCC) in
its “Rating Credit Risk” Comptroller’s Handbook.

• Investments/Transactions
The Company, its executive officers and their immediate family members,
individually or in combination, shall not make any investment in a
partnership or other privately held entity in which a Director is a principal or
in a publicly traded company in which a Director owns or controls more than
a 10% interest. Except as otherwise provided by this section, a Director or
family member of a Director may participate in ordinary course investment
opportunities or partnerships offered or sponsored by the Company only on
substantially similar terms as those for comparable transactions with
similarly situated non-affiliated persons.
Executive officers and their immediate family members may not invest in
partnerships or other investment opportunities sponsored, or otherwise made
available, by the Company unless their participation is approved in
accordance with these Guidelines. Such approval shall not be required if the
investment opportunity:
(i) is offered to qualified employees and investment by executive officers is
approved by the Personnel and Compensation Committee;
(ii) Is made available to an executive officer actively involved in a business
unit, the principal activity of which is to make such investments on behalf of
the Company, and is 11 offered pursuant to a co-investment plan approved
by the Personnel and Compensation Committee; or
(iii) Is offered to executive officers on the same terms as those offered to
qualified persons who are not employees of the Company. Transactions,
other than ordinary course transactions on third-party terms and conditions,
between Directors or executive officers and the Company or any of its
subsidiaries valued at less than $50 million require the prior approval of the
Transaction Review Committee; such transactions with a value of $50
million or more require the prior approval of the Nomination and
Governance Committee.
Except with the approval of the Nomination and Governance Committee, no
Director or executive officer may invest in a third-party entity if the
investment opportunity is made available to him or her as a result of such
individual’s status as, respectively, a Director or an executive officer of the
Company. No Director or immediate family member of a Director shall

receive an IPO allocation from a broker/dealer, including broker/dealers not
affiliated with the Company.
• Indemnification
The Company provides reasonable directors’ and officers’ liability insurance
for the Directors and shall indemnify the Directors to the fullest extent
permitted by law and the Company’s certificate of incorporation and by-
laws.
• Amendments
The Board may amend these Corporate Governance Guidelines, or grant
waivers in exceptional circumstances, provided that any such modification
or waiver may not be a violation of any applicable law, rule or regulation
and further provided that any such modification or waiver is appropriately
disclosed.
• Exhibit “A” To Corporate Governance Guidelines
Director Independence Standards
A Director shall qualify as independent for purposes of service on the Board
of the Company and its committees if the Board has determined that the
Director has no material relationship with the Company, either directly or as
an officer, partner or employee of an organization that has a relationship
with the Company. A Director shall be deemed to have no material
relationship with the Company and will qualify as independent provided that
(a) The Director meets the Director Independence Standards and (b) if there
exists any relationship or transaction of a type not specifically mentioned in
the Director Independence Standards, the Board, taking into account all
relevant facts and circumstances, determines that the existence of such other
relationship or transaction is not material and would not impair the
Director’s exercise of independent judgment.
These Director Independence Standards have been drafted to incorporate the
independence requirements contained in the NYSE corporate governance
rules and all other applicable laws, rules and regulations in effect from time

to time and are intended to supplement the provisions contained in the
Corporate Governance Guidelines. A fundamental premise of the Director
Independence Standards is that any permitted transactions between the
Company (including its subsidiaries and affiliates) and a Director, any
family member of a Director or their respective primary business affiliations
shall be on arms-length, market terms.
• Advisory, Consulting and Employment Arrangements
During any 12 month period within the last three years, neither a Director
nor any family member of a Director shall have received from the Company,
directly or indirectly, any compensation, fees or benefits in an amount
greater than $100,000, other than amounts paid
(a) pursuant to the Company’s Amended and Restated Compensation Plan
for Non-Employee Directors or
(b) To a family member of a Director who is a non-executive employee of
the Company. In addition, no member of the Audit and Risk Management
Committee, nor any immediate family member of such individual, nor any
entity in which an Audit and Risk Management Committee member is a
partner, member or executive officer shall, within the last three years, have
received any payment for accounting, consulting, legal, investment banking
or financial advisory services provided to the Company.
• Business Relationships
All business relationships, lending relationships, deposit and other banking
relationships between the Company and a Director’s primary business
affiliation or the primary business affiliation of a family member of a
Director must be made in the ordinary course of business and on
substantially the same terms as those prevailing at the time for comparable
transactions with non-affiliated persons. In addition, the aggregate amount
of payments in any of the last three fiscal years by the Company to, and to
the Company from, any company of which a Director is an executive officer
or employee or where a family member of a Director is an executive officer,
must not exceed the greater of $1 million or 2% of such other company’s
consolidated gross revenues in any single fiscal year. Loans may be made or
maintained by the Company to a Director’s primary business affiliation or
the primary business affiliation of an immediate family member of a
Director, only if the loan:

(a) Is made in the ordinary course of business of the Company or one of its
subsidiaries, is of a type that is generally made available to other customers,
and is on market terms, or terms that are no more favorable than those
offered to other customers;
(b) Complies with applicable law, including the Sarbanes-Oxley Act of
2002, Regulation O of the Board of Governors of the Federal Reserve, and
the Federal Deposit Insurance
Corporation (FDIC) Guidelines;
(c) When made does not involve more than the normal risk of collectibility
or present other unfavorable features; and
(d) Is not classified by the Company as Substandard (II) or worse, as defined
by the Office of the Comptroller of the Currency (OCC) in its “Rating Credit
Risk” Comptroller’s
Handbook.
• Charitable Contributions
Annual contributions in any of the last three calendar years from the
Company and/or the Citigroup Foundation to a foundation, university, or
other non-profit organization (“Charitable Organization”) of which a
Director or an immediate family member of a Director serves as a director,
trustee or executive officer (other than the Citigroup Foundation and other
Charitable Organizations sponsored by the Company) may not exceed the
greater of $250,000 or 10% of the Charitable Organization’s annual
consolidated gross revenue.
• Employment/Affiliations
An outside Director shall not:
(i) Be or have been an employee of the Company within the last three years;
(ii) Be part of, or within the past three years have been part of, an
interlocking directorate in which an executive officer of the Company serves
or has served on the compensation committee of a company that
concurrently employs or employed the Director as an executive officer; or
(iii) Be or have been affiliated with or employed by a present or former
outside auditor of the Company within the five-year period following the
auditing relationship.

An outside Director may not have a family member who:
(i) Is an executive officer of the Company or has been within the last three
years;
(ii) Is, or within the past three years has been, part of an interlocking
directorate in which an executive officer of the Company serves or has
served on the compensation committee of a company that concurrently
employs or employed such family member as an executive officer; or
(iii) (A) is a current partner of the Company’s outside auditor, or a current
employee of the Company’s outside auditor who participates in the auditor’s
audit, assurance or tax compliance practice, or
(B) Was within the last three years (but is no longer) a partner of or
employed by the Company’s outside auditor and personally worked on the
Company’s audit within that time.
• Definitions
For purposes of these independence standards
The term “family member” means any of the Director’s spouse, parents,
children, brothers, sisters, mother and father-in law, sons- and daughters-in-
law, and brothers and sisters-in-law and anyone (other than domestic
employees) who shares the Director’s home;
The term “immediate family members” includes the Director’s spouse and
other “family members” (including children) who share the Director’s home
or who are financially dependent on the Director; and
The term “primary business affiliation” means an entity of which the
Director is an officer, partner or employee or in which the Director owns
directly or indirectly at least a 5% equity interest.

BACKGROUND NOTE
Citigroup was formed in 1998 by the merger of Citicorp and Travelers
Group. The former's history could be traced to the City Bank of New York,
formed in 1812 with an authorized capital of $2 mn. In 1865, the company
joined the US national banking system and became The National City Bank
of New York. By the 1890s, City Bank became the largest bank in the US
and one of the major American banks to establish a foreign department.
Branches were started in Asia, Europe and Latin America by the early
1900s.
In 1955, City Bank's name was changed to the First National City Bank of
New York, and later shortened to the First National Citibank (FNC). In
1968, First National City Corporation, a bank holding company, became the
parent of FNC. In 1974, the holding company changed its name to Citicorp
in tune with its global business. In 1976, the First National City Bank
became Citibank NA (National Association).
Citigroup was the first financial services company in the US to bring
together banking, insurance and investments under one umbrella. By the
early 2000s, it had emerged as the largest financial services conglomerate in
the world with nearly 275,000 employees and 200 million customer
accounts in over 100 countries. Citibank NA was the largest bank in the
world in terms of market capitalization
In September 2004, Federal Services Agency (FSA), the financial regulatory
body of Japan, announced the closure of Citigroup's Private Banking
business in Japan starting from September 30, 2005 onwards. Independent
investigations conducted by FSA revealed major violations of law by the

Private Banking unit. The case details the irregularities in Citigroup's
Japanese operations and highlights the importance of good governance.
On September 17, 2004, the Financial Services Agency (FSA) the banking
and financial services regulatory body of Japan, announced that it had
revoked the licenses of the four Citigroup offices in Japan. Citigroup was
asked to withdraw from the Private Banking business in Japan after several
instances of illegal conduct of business by Citibank Japan came to light.
The four branches, one in Tokyo's Marunouchi business district and three
satellite branches in Fukuoka, Nagoya and Osaka, employing around 400
people, represented Citigroup's Private Banking business in Japan The
winding up of business commenced from September 29, 2004 onwards by
suspending all new transactions with customers.
Incorporated in 2001, FSA had been keeping a close eye on the working of
foreign and domestic banks in Japan .It uncovered a number of acts injurious
to public interest, serious violations of law and regulations and extremely
inappropriate transactions in the Private Banking unit.
FSA further said that Citigroup's management in Japan was solely driven by
profit motive and had created a law-evading sales system, breaking Japan's
banking laws and regulations. The irregularities at the Private Banking unit
were preceded by continued failure to improve internal controls despite
regulatory warnings over the past three years and a reprimand by the FSA in
May 2004.
After the unit was asked to wind up its operations, Charles O Prince
(Prince), CEO, Citigroup, acknowledged the irregularities saying, "I
sincerely apologize to customers and the public for the company's failure to
comply with legal and regulatory requirements in Japan. Senior staff in the
private bank had put short-term profits ahead of the bank's long-term
reputation and broken the law. It was a unique breakdown in Japan due to
the individuals involved."

BIBLIOGRAPHY
The whole project is with the courtesy of the following books, periodicals,
newspaper articles and sites:
Books:-
• Leadership & Corporate Governance-
A.V Vedpuriswar
• Business Ethics & Corporate Governance-
Vivek Gupta
• A review of current banking, theory and practice –
S.K Basu
• Business ethics and managerial values-
S.K Bhatia
Newspapers:-
• The Economic Times
Periodicals:-
• Economic and Political Weekly
• Professional Banker
Web sites: -
• www.wikipedia.com
• www.corgov.net
• www.citigroup.com

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