Jump in retail investors raises stakes for corporate governance: NFRA’s Pandey
- Ajay Bhushan Pandey, chairperson of the National Financial Reporting Authority, said that when the market indices move up, everyone is happy, but a serious corporate governance lapse could lead to people losing trust.
New Delhi: The substantial increase in household interest in the equity market has made corporate governance extremely important, as any corporate scandal could affect a larger number of households now than in the past, said Ajay Bhushan Pandey, director general and chief executive of Indian Institute of Corporate Affairs (IICA) and chairperson of the National Financial Reporting Authority (NFRA).
Pandey said at an event organized by IICA, a think-tank set up by the ministry of corporate affairs, that the increase in individual investors participating in the equity market makes it more critical for companies to follow strong corporate governance practices, as investor trust in companies is crucial for the country’s development.
“Today, there are roughly 16 crore demat accounts in the country. Our total population is about 140 crore and the total number of households would be about 30-32 crore. Imagine that out of the 30-32 crore households, 16 crore people have access to demat accounts. Of course, some families will have more than one. Not long ago, in 2019, that is, just five years ago, this number of demat account holders used to be about 3.5 crores,” Pandey said, highlighting the changing investment preferences of the people.
Also read: NFRA recommends revised audit standards for LLPs, ICAI objects to some changes
Bank's declining deposits
The number of mutual fund investors and systematic investment plan (SIP) subscribers has also gone up, Pandey said, adding that banks face declining deposits as people invest in the stock market. That is why it is absolutely necessary for companies to adhere to corporate governance norms religiously, Pandey emphasized.
Pandey also said that when the market indices move up, everyone is happy, but a serious corporate governance lapse could lead to people losing trust. “Then what will happen to the India story?” Pandey said, highlighting the need for businesses to have effective independent directors on the board.
On Friday, IICA signed deals with six executive search firms to facilitate appointment of qualified independent directors on the boards of companies. Professionals who wish to become independent directors have to register with IICA and complete a proficiency assessment, as per rules under the Companies Act.
IICA’s data base of qualified professionals will be made available to businesses for searching for the right candidate. Executive search firms have been engaged to strengthen the selection and appointment process of independent directors, IICA said in a statement.
Also read: NFRA Board revises all audit standards despite ICAI dissent on some likely effective from FY26
As per the regulatory regime, listed companies have to have half of their board seats reserved for independent directors if they have an executive chairman. If it is a non-executive chairman, it is enough to reserve one third board seats for independent directors. Unlisted public companies meeting certain parameters also need to have independent directors on their boards.
An official explained that at present, the corporate sector has around 35,000 positions of independent directors. One director can sit on the board of more than one company but there is a cap on the maximum directorships one could take up depending on whether it is listed or unlisted.
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Business NewsEconomyJump in retail investors raises stakes for corporate governance: NFRA’s Pandey
First Published:29 Nov 2024, 10:19 PM IST
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