Assessing the Quality of Bank Boards: Evidence from the Indian Banking Industry

Abstract

The article employs hand-collected data on 14 board characteristics for the period from 2004–2005 to 2016–2017 to empirically assess the evolution of board governance practices in the Indian banking industry. For this, we construct a comprehensive index for board governance and four sub-indices of board effectiveness. The study sheds light on how various characteristics of Indian bank boards have evolved over time. The mean value of the board index rose 33 per cent during the period of analysis, indicating a significant improvement in board governance practices of banks. The improvement in practices is primarily due to a considerable transition in the sub-dimensions of board structures and board independence. The transition in board structure results from the larger number of banks appointing different persons as CEOs and chairpersons; the change in board independence has principally emanated from the larger number of banks providing training to their independent directors, declarations and conducting separate meetings. Yet, our findings recommend room for further improvement in various aspects of board governance, including appointment of non-executive chairpersons, female directors and board independence. JEL Classification: G21, G34, C23