© 2019 JETIR April 2019, Volume 6, Issue 4 www.jetir.

org (ISSN-2349-5162)

A STUDY ON CORPORATE GOVERNANCE

PRACTICES IN HDFC BANK
Ms. Parul Saraswat
Research Scholar,
Dayalbagh Educational Institute,
Deemed University, Agra, India.

ABSTRACT: The main purpose of this research paper is to examine corporate governance practices of HDFC (The Housing
Development Finance Corporation) bank and to know the relationship between market valuation and operating performance of
HDFC bank in India. Exploratory design has been used. In this paper, one bank has been selected on the basis of market
capitalization. For this purpose of analyzing the data a period of 5 year (i.e. from 1 April 2013-14 to 31 March 2017-18) has
been taken into consideration. In order to analyze the relationship between the market valuation and operating performance, this
study is based on secondary data. The secondary data has been collected through banks websites, sebi, bse india and other
information collected from other source of secondary data would be journals, books, newspapers and magazines. The data
analyzed by, Mean, percentage, correlation analysis, t-test and multivariate regression have been used for the purpose of
analysis. The sales & CG of HDFC(The Housing Development Finance Corporation) bank have significant positive correlation
at level of significance and R multiple correlation coefficient is 0.664,R2 is 44.6 less than 50 percent so the model is not valid
and the impact of CG on sales of HDFC bank is statistically significant. There is a significant positive correlation between PAT
and Sales of HDFC bank. The mean of CG Score is 98% during the study period. The CG Performance of HDFC Bank 100
percent in all years from 2014-15 to2017-18 except one year i.e. 2014-15.The impact of CG on PAT & DPR is not statistical
significant. Therefore, HDFC bank to enhance it sales revenue, Profits after taxes and maintain optimum dividend policy for
maximizing the corporate excellence which ultimately enhance the CG (Corporate Governance).

Keywords: Disclosures, Banks, Corporate Governance Score, Market capitalization, DPR, PAT

I. INTRODUCTION

Corporate Governance is maintaining an appropriate balance of accountability between three key players: owners, directors &
manager. Disclosure is playing a key role in corporate governance. They demonstrate the quality and reliability of information
financial and non-financial these information provided by the managers to lenders, shareholders and public. Indeed, increase
disclosure requirement are response to the recent corporate governance failure for Enron, WorldCom, satyam that have made
headlines. Increased disclosures perceived as better governance because disclosure enables better decision making by actors in the
capital markets. Corporate disclosure is a process through which a corporate entity communicates business and financial
information to their stakeholders. High quality corporate disclosure helps investors and other capital market participants by
enabling them to make proper assessment of the potential risks and rewards of alternatives investments.

Corporate Governance has at its backbone, a set of transparent relationship between an institution management, its board,
shareholders and other stakeholders. It therefore, needs to take into account a number of aspects such as, enhancement of
shareholders value, protection of shareholder right, composition and role of board of director, integrity of accounting principles
and disclosure norms. The system of corporate governance provides for timely information on true and fair on all material
matters.

The global financial crisis has heightened the need for corporate boards of directors to provide well informed strategic
direction and engaged oversight that stretches beyond short term financial performance. Company generates wealth for
shareholders through an increase in business opportunity and broader access to markets. Thus better governance practices are
essential for long term strategic of the company.

II. OBJECTIVES OF THE STUDY

 To Study the Corporate Governance practices in HDFC bank.

 To identify the relationship between Market valuation and operating performance with the score of corporate governance
practices.

III. REVIEW OF LITERATURES:

Jordi Paniagua, Rafael Rivelles and Juan Sapena (2018) “Corporate Governance and Financial performance:
The role of ownership and board structure” This study examines how corporate governance and ownership structure
relate to the financial performance of firms. For this objective, multi method approach was used. The result of the study
is based on the agency theory, which provides the theoretical foundations that we used to study the link between
corporate governance and financial performance. The study helps CFOs and CEO design corporate financial strategies.
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Ekta Selarkh (2018) “Corporate Governance practices in India. This paper provides the overview of corporate
governance practices in India. SEBI Clause 49 guideline followed in India for the companies.

Syed Abdul Hameed (2016) “A Comparative Study on Corporate Governance Standards and Practices with
Special Reference to Indian Banking Industry” In this paper they examine the, comparative study between Corporate
Governance practices adopted by SBI & ICICI bank. Bank has been drafted to assess the structure and process of
corporate governance followed by select banks in india and their effectiveness in the content of substance and quality of
reporting of corporate governance activities in the annual report. ICICI bank has incorporated conventions of best
practices in corporate governance.

Rajesh K Pillania (2015) “Corporate Governance In India: Study of the top 100 firms” The paper studies the
corporate governance in the top 100 companies in India. The study find that in all industries irrespective of sector all
companies practices some sort of corporate governance at least as said in their annual reports due to mandatory
requirements. We find that corporate governance practices have a major impact on the performance of the companies.
Companies have no major plan to change their corporate governance practices in near future.

Ankita Asthana & M.L.Dutt (2013) “The extent of disclosure code of CG in India: A Comparative study of
Public and Private banks” This study examine public & private sector banks adopted Corporate Governance code in
their annual reports and to compare and understand the extent of compliance and non-compliance among sub parameters
in public and private sector banks. From the analysis the percentage score of public sector banks and private sector banks
are somewhat similar in total disclosure where the average is 73.13% and 74.27% respectively. The extent of non-
mandatory compliance in public sector bank is 60% and in private sector it was 71% respectively, which shows that
there is a scope for improvement.

Jyotindra M. Jani (2013) “A Comparative study on disclosure of corporate governance of B.P.C.L & I.O.C.L”
This paper tries to compare the disclosure practices of B.P.C.L & I.O.C.L .It find out that the both IOCL and BPCL
followed the corporate disclosure guidelines provided by SEBI. BPCL & IOC have scored 34 and 37 i.e. highest score in
the year and both have least score of 29 and 34 in the year respectively. There is no large difference in the score of both
companies for the year.

Barghva singh (2008) “Disclosures of Corporate Governance” In this paper, examine the disclosure i.e. financial and
non-financial information in the annual report. It consists of 40 public sector enterprises on the basis of index of
disclosure card that included the 35 items so they indicate that there were differences in quality of disclosure made by
sample companies.

IV. HYPOTHESES

 HO1: The PAT (Profit after Tax) of the HDFC bank is not influencing significantly its Corporate Governance.
 HO2: The DPR (Dividend Payout Ratio) of the HDFC bank is not positively influencing its Corporate Governance.
 HO3: Sales of HDFC bank is not influencing significantly its/on Corporate Governance.

V. RESEARCH DESIGN AND METHODOLOGY

Exploratory Research Design has been used in the study. For the purpose of analysis, Secondary data has been collected. The
secondary data which is collected from the published sources such as books, journals, and bank websites. A score of 1 was
awarded if an item was reported otherwise a score of 0 was awarded. A bank can score a maximum of 10 points and a minimum
of 0. CG score is calculated, on the basis of Clause 49 of SEBI.

 Research Design Exploratory Design has been used in the study.

 Data Collection Secondary data has been used in this study. Secondary data which is collected from the published
sources such as Books, Journals, Websites and research paper.

 Scope of the study the scope of study is constrained to corporate governance practices of HDFC bank of India.

 Sample of the study one bank has been selected on the basis of market capitalization.

 Duration of the study Data collected from 2013-14 to 2017-18.

 Statistical Tools Mean, Regression, Correlation Analysis, Coefficient of determination and t-test.

VI. DATA ANALYSIS & INTERPRETATION OF THE STUDY

On the basis of clause 49 of SEBI, parameter has been taken from annual reports for five years. A score of 1 was awarded if
an item was reported otherwise a score of 0was awarded. A bank can score a maximum of 10 points and a minimum of 0. CG
score is calculated, on the basis of Clause 49 of SEBI.

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Company Philosophy on Corporate Governance

Bank believes that proper corporate governance facilitates effective management and control of business, which enables the
bank to maintain a high level of business ethics and to optimize values for all stakeholders. It is important tool for shareholder
protection and maximization of shareholder values.

Formation of the Board of Director

There are 12 members of board. In this board, there are 3 executive director, 2 Non Executive director, 6 Independent
directors and 1 additional director.

Organization committees in HDFC bank

Audit Committee, Nomination & Remuneration Committee, Stakeholders Relationship Committee, Risk policy and
monitoring Committee, Credit Approval Committee, Customer Service Committee, Fraud monitoring Committee, Corporate
Social responsibility Committee.

Additional Information

Information regarding AGM of shareholders, Market Price, pattern of shareholders, Profile of members as disclosed in the
Corporate Governance Report and annual report of banks. RBI notified that all banks include separate section in their annual
report.

Table 6.1: Corporate Governance Score of HDFC Bank

CG Parameters Allotted 2013-14 2014-15 2015-16 2016-17 2017-18

Score
Philosophy 1 1 1 1 1 1

Composition of BODs
Formation of Board 1 1 1 1 1 1
Board Meeting 1 1 1 1 1 1

Audit Committee 1 1 1 1 1 1
Nomination and 1 1 1 1 1 1
Remuneration Committee
Shareholders Grievance 1 1 1 1 1 1
Committee
Risk & Monitoring 1 0 1 1 1 1
Committee
Disclosure 1 1 1 1 1 1
CEO/CFO Certification 1 1 1 1 1 1
Non Mandatory 1 1 1 1 1 1
Total Score 10 9 10 10 10 10

Mean Score 9.8

Source: Prepared by Author from the Annual Report of the HDFC Bank

The above table reveals that Corporate Governance Score of HDFC bank is increasing trend during the study period of 2014-
15 to 2017-18 except 2013-14. The mean Score of HDFC bank is 9.8 so imply that bank is following the better corporate
governance practices.

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Table 6.2: Dependent and Independent Variables

Year SALES PAT DPR EPS ROE ROA CG

(%) SCORE
2013-14 41135.54 3478.40 19.53 80.62 19.50 1.71 90
2014-15 48469.97 4392.83 19.62 80.38 16.47 1.94 100

2015-16 60221.4 5885.66 19.53 80.47 16.91 1.72 100

2016-17 69305.9 8606.97 17.00 56.78 16.26 1.71 100

2017-18 80241.35 8606.97 13.00 67.38 16.45 1.83 100

Mean 59874.83 6194.16 17.73 73.12 17.11 1.78 98%

SD 15693.08 2364.24 2.87 10.75 1.35 .10 .04

60000

50000

40000

30000 Mean

20000 SD

10000

0
Sales PAT DPR EPS ROE ROA CG%
Score

Figure- 6.1

The above table shows that Sales of banks is increasing trend from 2013-14 to 2017-18 and also increase PAT ratio from
2013-14 to 2016-17and then in 2017-18 remain constant. The dividend payout ratio in increasing from 2013-14 to 2014-15 except
2017-18.EPS are increasing trend from 2013-14 to 2015-16 except 2016-17.The Return on Equity of HDFC bank are in
decreasing trend from 2014-15 to 2017-18 except in 2013-14.The mean of (ROA) Return on Asset is 1.78 and it is in decreasing
to increasing trend from 2013-14 to 2017-18 except 2014-15. The mean CG score of HDFC bank is 98% and it is increasing from
2013-14 to 2017-18.The mean and standard deviation of EPS and DPR of HDFC bank is 73.12,10.75 & 17.73, 2.87 respectively.

Table 6.3: Correlation Matrix

SALES PAT DPR EPS ROE ROA CG

SALES 1
PAT 0.965 1
DPR -0.876 -0.811 1

EPS -0.728 -0.875 0.644 1

ROE -0.695 -0.697 0.417 0.507 1

ROA -0.027 -0.133 -0.100 0.240 0.420 1

CG -0.688 -0.642 0.349 0.389 0.984 -0.395 1

Note: PAT= Profit After Tax, DPR= Dividend payout Ratio, EPS= ROE= Return on Equity, ROA= Return on Asset,

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CG= Corporate Governance.

 The Calculated value of t (t cal = 1.45) which is less than critical t- value of 1.63 at 3 degree of freedom at level of
significance so accept HO3. Therefore profit After Tax of HDFC bank is not influencing on Corporate Governance.

 The Calculated value of t (t cal = 0.646) which is less than t-table value of 1.63 at 3 degree of freedom at 0.20 level of
significance so accept HO2. Therefore DPR (Dividend Payout Ratio) of the HDFC bank is not positively influencing its
Corporate Governance.

 The Calculated value of t (t cal = 1.55) which is less than t-table value of 1.63 at 3 degree of freedom at 0.20 level of
significance so accept HO3. Therefore Sales of HDFC bank is not influencing on Corporate Governance.

 The relation between ROA and CG is negative and not significant as correlation coefficient is -0.39.The correlation
coefficient between ROE and CG is positive and highly significant. The relationship between EPS and CG is positive
correlation.

OPERATING PERFORMANCE

It is the measure of profitability in relation to sales revenue, this ratio regulate net income earned on the sales revenue
generated. Enhancing the performance is related with profitability, which in turn is return of brand image.it also protect the
viability of business by regarding the customer confidence and market trust.

This section of the study is to determine the impact of corporate governance on operating performance (Revenue and PAT)
OF HDFC bank for the years

Table 6.4: Impact of CG (Corporate Governance) on PAT of HDFC Bank

Variable Regression Standard Error of t Sig.t.

Coefficient Regression Coefficient value

Constant 7297.446 1205.914 6.051 .009

CG .642 29.248 1.451 .243
Multiple R=.642 R²=.412 Adj. R²=.216 S.E.of R =2092.79
Source- SPSS

Table 6.5: ANOVA

Model Sum of Squares df Mean Square F Sig.

Regression 9219231.208 1 9219231.208 2.105 .243

Residual 13139387.38 3 4379795.79

Total 22358618.59 4

There is no significant impact of corporate governance on PAT of HDFC bank as F-table for n1=1,n2=3 degree of freedom at
0.05=10.13 which is more than F-cal value of 2.105. The PAT and corporate Governance of HDFC bank are positively correlated
as R is 0.642. The coefficient of determination is 41.2%. The analysis indicates that sales have positive impact on Corporate
Governance as beta value is 0.642.For one unit increase in Corporate Governance; sales of HDFC (The Housing Development
Finance Corporation) bank are increased by 0.642 units. The model is valid and R value is 64.2% which is more than 50% and it
is significant.

Table 6.6- Impact of CG (Corporate Governance) On DPR of HDFC Banks

Variable Regression Standard Error of t value Sig.t.

Coefficient Regression Coefficient

Constant 17.007 1.790 9.504 .002

CG .028 .043 0.646 .564
Multiple R²=.122 Adj. R²= -.171 S.E. of R = 3.10562
R=.028
Source- SPSS

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Table 6.7- ANOVA

Model Sum of Squares df Mean Square F Sig.

Regression 4.023 1 4.023 .417 .564

Residual 28.935 3 9.645

Total 32.958 4

There is no significant impact of corporate governance on DPR of HDFC (The Housing Development Finance Corporation)
bank as F-table for n1=1, n2=3 degree of freedom at 0.05=10.13 which is more than F-cal value of .417. The PAT and corporate
Governance of HDFC bank are positively correlated as R is .349. The coefficient of determination is 12.2%. The analysis
indicates that sales have positive impact on Corporate Governance as beta value is .028.For one unit increase in Corporate
Governance; sales of HDFC bank are increased by .028 units. The model is not valid and R value is 12.2% which is less than 50%
and R is not statistically significant.

Table 6.8: Impact of CG (Corporate Governance) On Sales of HDFC Banks

Variable Regression Standard Error of t Sig.t.

Coefficient Regression Coefficient value
Constant 67487.66 7774.65 8.68 .003
CG .668 188.56 -1.553 .218
Multiple R=.668 R²=.446 Adj. R²=.261 S.E. of R = 13492.47
Source- SPSS

Table 6.9: ANOVA

Model Sum of Squares df Mean Square F Sig.

Regression 438951330.8 1 438951330.8 2.411 .218
Residual 546140819.5 3 182046939.8
Total 985092150.3 4

There is no significant evidence of impact of Corporate Governance (CG) on sales or turnover of HDFC bank as F table for
n1=1,n2=3 degree of freedom at 0.05=10.13 which is more than F-cal value of 2.411. The sales and corporate Governance of
HDFC bank are positively correlated as R is 0.668. The coefficient of determination is 44.6%. The analysis indicates that sales
have positive impact on Corporate Governance as beta value is 0.668.For one unit increase in Corporate Governance; sales of
HDFC bank are increased by 0.668 units. The model is valid and R value is 66.8% which is more than 50% ad it is not
statistically significant.

CONCLUSION

Thus, it is observed that HDFC (The Housing Development Finance Corporation) bank is in keen implementing best practices
with regard to Corporate Governance practices as the mean score of CG is 98 percent and is in increasing trend. The positive
aspects of HDFC Bank CG include Corporate Governance philosophy, Number of board members & Board meeting with large
representation of Executive, NED, Independent directors and all necessary information which useful is disclosed by bank. One
more thing positive aspect of HDFC bank practices is enhancing Corporate Governance practices year by year.

Some negative aspects like not disclosing information on dematerialization of shares, credit rating information by Indian and
foreign Rating agencies, employee stock option details, Whistle blower policy and information on director is no given in annual
reports. The data analyzed by correlation analysis, multiple regression and t-test reveals that sales, market capitalization, DPR,
PAT, and CG Score are positively correlated. The study show that sales and CG have significant positive correlated at
significance level and multiple R .642, the model is valid. The impact of DPR & Sales is not statistically significant. Therefore,
HDFC bank enhances its Sales, DPR and PAT and maintains dividend policy for maximizing the corporate excellence which
ultimately enhances the CG.

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REFERENCES

 Asthana, A., & Dutt, M.L. (2013). The Extent of Disclosure code of Corporate Governance in India: A Comparative
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 Hameed, S. A. (2016). A Comparative Study on Corporate Governance standard and practices with special reference to
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 Jani, J.M. (2013, june). A Comparative study on disclosure of Corporate Governance of B.P.C.L & I.O.C. International
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 Paniagua,J., Rivelles, R., & Sapena, J.(2018, February). Corporate Governance and financial performance: the role of
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 Singh, B. (2008). Disclosures of Corporate Governance, Indian Journal of Accounting, 7, pp., 17-19.

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