Directors in India to sit for exams on Governance in light of rise in Scandals

Prime Minster Narendra Modi is hoping to update country’s corporate administration framework that has so far not been able to limit the damage on the investor’s wealth on account of string of frauds that has impacted the banking sector the most. These have unfortunately marred the prime ministers first stint in the office, however there is hope that with the introduction of exams for the ones who run the organisation may help bring better governance in the Indian corporate sector.

The top bureaucrat at Corporate Affairs Ministry Injeti Srinivas said the Independent Executive directors in organisations will soon need to clear exams before they may be appointed. The Exam might be a web assessment including the fundamentals of Indian company regulation, Ethics and Capital marketplace norms among different areas of corporate governance. The directors will have a timeline in which they need to clear the exams, though the examination may allow multiple attempts. Experienced directors who are already on board for several years may be exempted from the check but will have to mandatorily sign in themselves on a database the government is making ready.

“We want to demolish the parable that impartial directors don’t have any fiduciary obligations” Srinivas stated in an interview in New Delhi on June 6. We have to propagate corporate literacy to make them understand their Duties, Roles and Responsibilities. This obviously comes on the back of some of the largest scandals that have hit the corporate sector in recent times. It all started with the fraud at PNB bank by Nirav Modi the scale of which auditors are still trying to ascertain. And the recent one being IL&FS group, a vast conglomerate struggling to service more than $12 billion in debt, though there were no such indications by the auditors of the group, namely the Deloitte and BSR (associate company of KPMG). Credit scoring agencies didn’t warn of drawing close defaults at IL &FS Group due to the incompetent; this has now warranted Company Affairs Ministry asking for 5-12 months ban on Deloitte saying that they failed to enquire IL and FS loans.

According to current law in India each employer has to have a team of unbiased directors accounting for at least a third of its board strength.Their principal duty is to behave asoverseers from outside the operation and whohave impact on of the firm, which helps in safeguarding the interest of the minority shareholders.Some of India’s top banks are burdenedwith the allegations of unsuitable lending with a recent development of YES banks huge increase in NPA, the reason for which the banking regulator has decided to ban SR Batliboi&Co an affiliate of EY from financial institution audits for 365 days. EY has though decided to challenge this ban, it does seem the Big 4’s in the country are definitely passing through the most challenging phase as PWC is already under a ban for its role in the Satyam scan, and the remaining 3 (Deloitte, KPMG, EY) now under fire.

“Deloitte is fully compatible with Indian audits standards and expects to present its position to Indian government”,a spokesman stated by using email. Srinivas who aims to roll out the brand new oversight programs within months,stated the final purpose of the examination is to make certain that officials aren’t capable of pleading lack of understanding in the event that they‘re hauled up over a lack of oversight.

The best way forward to make certain the entrenchment of good governance requirements are embedded in the organisation culturewhich also includes improving leadership stated Somasekhar Sundaresan, a Mumbai based lawyer at J Sagar friends. Sundaresan also stated “indeed there is also a need for advocacy and consciousness but administering an examination may be some other box of test”.

Increasing responsibility is a key to Modi’s re-election campaign, which promises of being a watchman who will protect India’s borders from enemies and its residents against corruption. The robust corporate governance culture in the corporate sector will definitely help make the Indian economy immune to any such fraudulent attempts in future. Though it needs to be seen how well this new process gets implemented.