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Business News/ Specials / Best Boards 2012/  Problem is not with rules, but accountability: HDFC’s Puri

Mumbai: Aditya Puri, managing director of HDFC Bank Ltd, spoke in an interview about the board’s role in managing risk and defining the macro environment. Edited excerpts:

How effective can the board be in a large bank like yours?

A board can be as effective as the functions of the board and the management. So the main thing is to decide the responsibility of the board and that of the management. The board, as far as I can see, is the supervisory body ensuring that the values of the bank as well as the objectives and principles and policies are followed. However, they can only be effective if they are backed up by the management through appropriate reporting and an open style of management. So I think a board, given the wide variety of experience that they have, could be very valuable in managing risk or defining the macro environment in terms of making sure that the policies and procedures reflect the kind of risk that the institution should take as presented in the business plan. But it would have to be a joint effort between the board and the management.

Your independent directors do not seem to have much experience in financial sector services.

I would have to disagree with you. If you see our independent directors, Bobby Parikh is a well-acknowledged expert in taxation, financial advice accounting, etc. If you look at Partho Dutta, he is probably one of the most respected people in having been a finance director in multinationals, private family companies, etc. Frankly, I think Keki (Mistry) functions as an independent director even though he may be an HDFC nominee, but I think he functions in the best interest of the bank. If you take C.M. Vasudev, he’s been finance secretary...his experience has also been very valuable. Then we have specialized directors for small-scale and agriculture, who bring their expertise.

Is there something unique about your board which other banks cannot boast of?

I think it’s not so much the uniqueness of the board as it is the fact that the board and the management work in tandem. We have clearly defined responsibilities and we are a very open organization. All presentations are made by the respective business heads. Most business heads are invited to every meeting. So it’s not something that I brief the board on. They actually are involved in business planning, they are involved in talking and understanding with the executives, they hear it as it is. There is no I think it’s not so much as I am effective or the board is effective, but jointly me, representing the management, and the board together make sure that we are managing the bank.

The proposed changes in the Companies Bill could affect the status of independent directors with regard to age, tenure, rotation, etc. Will there be an impact on your board’s constitution?

Not much, because RBI (Reserve Bank of India) already has, under the Banking Regulation Act, policies on rotation and appointment and nomination, and we have a reasonably young board. So I don’t think there’s (going to be) a major impact.

What do you expect from independent directors?

If you look at good corporate governance, s/he is supposed to take care of all your constituents not just the majority shareholders. So s/he has to take care of the majority shareholders, the minority shareholders, the employees, your borrowers, the suppliers and society. It is very important that an independent director makes sure the company is run in a manner that it is managing the expectations and needs of all constituents and is not dominated by the majority shareholders.

How do you constitute a framework of best practice structures and processes?

The point is that all of us know what is right and what is wrong. The question is how to institutionalize it. It’s only when practices are institutionalized to the last detail that they work. So the framework has to be policy and procedures that back your fundamental objectives because everybody’s objective is we want to take care of all our constituents, we want to be fair and transparent, we want to be ethical—but this is where you go as far as statements are made.

Your compliance officer also does not report to you.

Yes, absolutely. Because that’s not my job. I am a business guy and I want to do business within the right framework. And when I say framework, it includes regulatory and other compliance.

You can have all the procedures, but you can end up following them only in letter, not in spirit… The intent must be there. If you don’t believe in common values, nothing is going to happen. If the majority of the people believe in the procedures, policy and intent, a minority cannot be needed.

How can the level of corporate governance be raised?

Firstly, it must be clearly understood that the board has a role. He (the board member) is the representative of the shareholders, he is required to ensure that there is a balance and the management is doing what it’s supposed to do. The issue is when you have a board, then I think that wherever you will find a good board, the job and responsibility of the board is very clearly defined. The law provides for the board to be empowered under regulation. So if the board decides that they want to exert the power given to them within the existing framework, there is no reason why you should not have an effective board.

How do you assess the role of the ministry of corporate affairs and the Securities and Exchange Board of India? Is there any scope for further improvement in corporate governance issues? How effective are the ministry and regulators?

This is a tough one. In general, I would only say it is better to keep simple rules, fewer rules and if somebody violates it, he should be penalized. The problem is not with the rules in this country, the problem is with the accountability. If there is a rule and you break it, you should be worried. If you are not worried in terms of the fact that you will face a big problem, you will go ahead to break the rule. So I think there is no dearth of good regulators who have provided the framework, but the problem is ensuring that there is accountability and deterrent punishment.

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Updated: 12 Dec 2012, 11:38 AM IST
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