. how do we in india fare in corporate governance in the financial sector? i am told that there are number of models of corporate governance – ( a ) the “ outsider ” model of the u. s. and u. k. type where there is separation of ownership and management ; and ( b ) the “ insider ” model – as in europe or asia, where a small group of inter - connected shareholders exercise control over management. east asian model is more family oriented while european model involves inter - connected entities. in the “ insider ” model, it is difficult to distinguish between shareholder and management respectively. in india, in the financial sector, we now have all the three varieties with certain important differences with the u. s., europe or asia. public sector banks / fis, for example, are more akin to the ‘ outsider ’ model with separation of “ ownership ’ and ‘ management ’. private sector banks / nbfc / co - ops – much more “ insider ” models with families, inter - connected entities or promoters running the management. there is some uniformity in the corporate governance structure in the “ outsider model ” consists of relatively large public institutions, and which are also relatively old. on the positive side : ( a ) difference in ‘ ownership ’ and ‘ management ’ ; ( b ) disclosure and transparency ( with one or two exceptions ). they are also becoming subject to better accounting standards ; ( c ) prudential norms – capital adequacy ratio ( car ), provisioning, rec. norms are fairly good. because of sovereign risk, money is also safe with one - two aberrations. on the negative side : ( a ) there is separation of ‘ ownership ’ and ‘ management ’, but no checks and balances. ceo as well as the board is appointed by the owner, i. e government ( b ) very little accountability to the board as board cannot remove the chairman ; ( c ) substantial limitations on management as staff issues are outside the purview of management ; ( d ) weak on internal auditing and risk management. the crucial issue that the country has to debate is whether corporate governance is compatible with public ownership, which makes the system accountable to political institutions and not to the economic institutions or even regulators. this is a big and fundamental issue which our country has to debate and decide. is a “ via media ” possible? could we have public ownership without government or political control or do we need to change to a corporate structure?

, i joined the george washington university for getting a taste of education in a foreign university. i took a course in management services. the professor emphasised various aspects of organisational behaviour. i found that the best interest of the organisation that one serves was missing in the analysis. when i queried, he said : “ it is your boss who interprets to you, what is good for the organisation ”. when i persisted, he added, “ we deal with the corporate behaviour in the context of north american male in the u. s. a. ” i must confess that i continue to be old - fashioned. any institution has, and in any case, should have a character, culture and interest that are worth pursuing even if they appear to be at variance from the sum of the interests of the individual, or the minority or the majority stakeholders. i will leave this thought of viewing corporate governance in broader terms extending beyond its immediate constituent stakeholders on the few occasions when a divergence in interests might arise. with this, let me move on to what we have been doing in rbi on this subject. reserve bank ’ s approach the formal policy announcement in regard to corporate governance was first made by my distinguished predecessor, dr. bimal jalan in the mid - term review of the monetary and credit policy on october 21, 2001. pursuant to this announcement, a consultative group was constituted in november 2001 under the chairmanship of dr. a. s. ganguly : basically, with a view to strengthen the internal supervisory role of the boards. an advisory group on corporate governance under the chairmanship of dr. r. h. patil had earlier submitted its report in march 2001 which examined the issues relating to corporate governance in banks in india including the public sector banks and made recommendations to bring the governance standards in india on par with the best international standards. there were also some relevant observations by the advisory group on banking supervision under the chairmanship, shri m. s. verma which submitted its report in january 2003. keeping all these recommendations in view and the cross - country experience, the reserve bank initiated several measures to strengthen the corporate governance in the indian banking sector. in june 2002, the report of the ganguly group was transmitted to all the banks for their consideration while simultaneously transmitting it to the government of india for appropriate consideration. it may be noted here that there is a basic difference between the private sector banks and public sector banks as far as the reserve bank ’ s role in governance matters