HDFC BANK Corporate Governance: HDFC Bank recognizes the importance of good corporate governance, which is generally accepted

as a key factor in attaining fairness for all stakeholders and achieving organizational efficiency. This Corporate Governance Policy, therefore, is established to provide a direction and framework for managing and monitoring the bank in accordance with the principles of good corporate governance. Code of Corporate Governance: The Bank believes in adopting and adhering to best recognized corporate governance practices and continuously benchmarking itself against each such practice. The Bank understands and respects its fiduciary role and responsibility to shareholders and strives hard to meet their expectations. The Bank believes that best board practices, transparent disclosures and shareholder empowerment are necessary for creating shareholder value. The Bank has infused the philosophy of corporate governance into all its activities. The philosophy on corporate governance is an important tool for shareholder protection and maximization of their long term values. The cardinal principles such as independence, accountability, responsibility, transparency, fair and timely disclosures, credibility etc. serve as the means for implementing the philosophy of corporate governance in letter and spirit. Corporate Governance Rating: The bank was amongst the first four companies, which subjected itself to a Corporate Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating Information Services of India Limited (CRISIL). The rating provides an independent assessment of an entitys current performance and an expectation on its balanced value creation and corporate governance practices in future. The bank has been assigned a CRISIL GVC Level 1 rating for the second consecutive year, which indicates that the banks capability with respect to wealth creation for all its stakeholders while adopting sound corporate governance practices is the highest Composition of the Board: The Composition of the Board of Directors of the Bank is governed by the Companies Act, 1956, the Banking Regulation Act, 1949 and the listing requirements of the Indian Stock Exchanges where the securities issued by the Bank are listed. The Board has a strength of nine (9) Directors as on September 30, 2010. All Directors other than Mr. Aditya Puri, Mr. Harish Engineer and Mr. Paresh Sukthankar are non-executive directors. The Bank has four independent directors and five non-independent directors. The Board consists of eminent

persons with considerable professional expertise and experience in banking, finance, agriculture, small scale industries and other related fields. None of the Directors on the Board is a member of more than ten (10) Committees and Chairman of more than five (5) Committees across all the companies in which he/she is a Director. All the Directors have made necessary disclosures regarding Committee positions occupied by them in other companies. Profiles of Directors: Mr. C.M. Vasudev, Mr. Keki Mistry, Mr. Aditya Puri, Mr. Harish Engineer and Mr. Paresh Sukthankar are non-independent Directors on the Board. Mr. Ashim Samanta, Dr. Pandit Palande and Mr. Partho Datta are independent directors on the Board. Mr. Keki Mistry represents HDFC Limited on the Board of the Bank. The Bank has not entered into any materially significant transactions during the year 2009-10, which could have a potential conflict of interest between the Bank and its promoters, directors, management and/or their relatives, etc. other than the transactions entered into in the normal course of business. The Senior Management have made disclosures to the Board confirming that there are no material, financial and/or commercial transactions between them and the Bank which could have potential conflict of interest with the Bank at large. None of the directors are related to each other. Board Committees: The Board has constituted various committees of Directors to take informed decisions in the best interest of the Bank. These committees monitor the activities falling within their terms of reference. Various committees of the Board were reconstituted during the year. The Boards Committees are as follows:

Audit and Compliance Committee Compensation Committee Investors Grievance (SHARE) Committee Risk Policy Credit Approval Committee Premises Committee Nomination Committee Fraud Monitoring Committee Customer Service Committee
Ownership Rights: Certain rights that a shareholder in a company enjoys :

To transfer the shares & receive the share certificates upon transfer within the stipulated period prescribed in the Listing Agreement. To receive notice of general meetings, annual report, the balance sheet and profit and loss account and the auditors report. To appoint proxy to attend and vote at the general meetings. In case the member is a body corporate, to appoint a representative to attend and vote at the general meetings of the company on its behalf.

To attend and speak in person, at general meetings. Proxy cannot vote on show of hands but can vote on a poll. To vote at the general meeting on show of hands wherein every shareholder has one vote. In case of vote on poll, the number of votes of a shareholder is proportionate to the number of equity shares held by him.

As per Banking Regulation Act, 1949, the voting rights on a poll of a shareholder of a banking company are capped at 10% of the total voting rights of all the shareholders of the banking company.

To demand poll alongwith other shareholder(s) who collectively hold 5,000 shares or are not less than 1/10th of the total voting power in respect of any resolution. To requisition an extraordinary general meeting of any company by shareholders who collectively hold not less then 1/10th of the total paid-up capital of the company. To move amendments to resolutions proposed at meetings . To receive dividend and other corporate benefits like rights, bonus shares etc. as and when declared / announced. To inspect various registers of the company, minute books of general meetings and to receive copies thereof after complying with the procedure prescribed in the Companies Act, 1956.

The rights mentioned above are prescribed in the Companies Act, 1956 and Banking Regulation Act, 1949, whereever applicable, and should be followed only after careful reading of the relevant sections. These rights are not necessarily absolute. The Memorandum and Articles of Association of the Bank provides the following rights to HDFC Limited, promoter of the Bank: The Board shall appoint non-retiring Directors from amongst the Directors nominated by HDFC Limited with the approval of shareholders, so long as HDFC Limited and its subsidiaries, singly or jointly hold not less than 20% of the paid-up share capital of the Bank. HDFC Limited shall nominate either a part-time Chairman and the Managing Director or a full time Chairman, with the approval of the Board and the shareholders so long as HDFC Limited and its subsidiaries, singly or jointly hold not less than 20% of the paid-up share capital of the Bank. Under the terms of Banks organisational documents, HDFC Limited has a right to nominate two directors who are not required to retire by rotation, so long as HDFC Limited, its susbsidiaries or any other company promoted by HDFC Limited either singly or in the

aggregate holds not less than 20% of paid up equity share capital of the Bank. At present, the two directors so nominated by HDFC Limited are the Chairman and the Managing Director of the Bank. For detailed provisions, kindly refer to the Memorandum and Articles of Association of the Bank, which are available on the web-site of the Bank at www.hdfcbank.com. Key Shareholders Rights: HDFC Limited, Bennett, Coleman & Co. Ltd. and its group companies (the promoters of erstwhile Times Bank Limited) and Chase Funds had entered into a tripartite agreement dated November 26, 1999 for effecting amalgamation of Times Bank Limited with the Bank. Under this Agreement, Bennett Coleman Group has a right to nominate one Director on the Board of the Bank as long as its holding exceeds 5% of the share capital of the Bank. Currently, as on March 31, 2008, the Bennett Coleman Group holds 4.57% of the share capital of the Bank and Mr. Vineet Jain who represented the Bennett Coleman Group on the Board has since resigned as a Director of the Bank. Code of Conduct: All the Directors and senior management personnel have affirmed compliance with the Code of Conduct/Ethics as approved and adopted by the Board of Directors. Listing Listing on Indian Stock Exchanges: The equity shares of the Bank are listed at the following Stock Exchanges in India:
Sr.No. 1. Name and address of the stock exchange. BombayStockExchangeLimited Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai 400 023 The National Stock Exchange of IndiaLimited Exchange Plaza, 5th Floor, Bandra Kurla Complex, Bandra(East), Mumbai 400 051 Stock Code 500180

2.

HDFCBANK

Names

of

Depositories

in

India

for

dematerialisation

of

equity

shares:

(ISIN INE040A01018)
National Securities Depository Limited (NSDL) Central Depository Services (India) Limited (CDSL)

Listing on International Stock Exchanges:

Sr.No. Security description Name and address of the stock exchange Name and address of Depository

1.

The American Depository Shares (ADS) (CUIP No.40415F101)

The New York Stock Exchange (Ticker HDB) 11, Wall Street, New York, N.Y.11005 Luxembourg Stock Exchange Postal Address: 11,av de la Porte-Neuve, L-2227 Luxembourg. Mailing Address: B.P. 165, L-2011, Luxembourg

J P Morgan Chase Bank, N.A.4, New York Plaza, 13th Floor, New York, NY10004 Deutsch Bank Trust Company America 2, Bourlevard Konrad Adenauer, L- 1115 Luxembourg

2.

Global Depository Receipts (GDRs) (ISIN No. US40415F20 02)

The Depository for ADS and GDRs are represented in India by J P Morgan Chase Bank NA and ICICI Bank Ltd respectively Share Transfer Process: The banks shares which are in compulsory dematerialised (demat) list are transferable through the depository system. Shares in physical form are processed by the Registrars and Share Transfer Agents, Datamatics Financial Services Ltd and approved by the Investors Grievance (Share) Committee of the Bank or authorised officials of the Bank. The share transfers are processed within a period of 15 days from the date of receipt of the transfer documents by Datamatics Financial Services Ltd.
Your Bank has had a consistent dividend policy that balances the dual objectives of appropriately rewarding shareholders through dividends and retaining capital, in order to maintain a healthy capital adequacy ratio to support future growth. It has had a consistent track record of moderate but steady increases in dividend declarations over its history with the dividend payout ratio ranging between 20% and 25%. Consistent with this policy, and in recognition of the Banks overall performance during this financial year, your directors are pleased to recommend a dividend of Rs.12 per share for the financial year ended March 31, 2010, as against Rs.10 per share for the year ended March 31, 2009.

Details of dividend declared by the Bank:

2009-2010 2008-2009 2007-2008 2006-2007 2005 2006 2004 2005 2003 2004 2002 2003 2001 2002 2000 2001 1999 2000 120% 100% 85% 70% 55% 45% 35% 30% 25% 20% 16%

1998 1999 1997 1998 1996 1997

13% 10% 8%

Board Meetings: During the year under review, six Board Meetings were held on April 23, 2009; July 14, 2009; October 14, 2009; December 21, 2009; January 15, 2010; and March 19, 2010. Details of attendance at the Banks Board Meetings held during the year under review, directorship, membership and chairmanship in other companies for each director of the Bank are as follows: Name of Director Attendance at the Banks Board Meetings Directorship of other Indian Public Limited Companies Mr. Jagdish Capoor Mr. Aditya Puri Mr. Keki Mistry Mrs. Renu Karnad Mr. Arvind Pande Mr. Ashim Samanta Mr. C. M. Vasudev Mr. Gautam Divan Dr. Pandit Palande Mr. Harish Engineer Mr. Paresh Sukthankar 5 6 5 6 6 6 5 6 6 6 6 3 Nil 13 13 5 1 4 2 Nil Nil Nil 3 Nil 10 5 3 Nil 2 1 Nil Nil Nil Membership of Other Companies Committees Chairmanship of Other Companies Committees 2 Nil 2 2 Nil Nil Nil 1 Nil Nil Nil

Compliance with Mandatory Requirements: The Bank has complied with all the mandatory requirements of the Code of Corporate Governance as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges in India.

 Compliance with Non-Mandatory Requirements: a) Board of Directors The Bank maintains the expenses relating to the office of non-executive Chairman of the Bank and reimburses all the expenses incurred in performance of his duties. Pursuant to Section 10(2A) of the Banking Regulation Act, 1949, all the directors, other than the Chairman and/or whole-time director, cannot hold office continuously for a period exceeding 8 (eight) years. b) Remuneration Committee The Bank has set-up a Compensation Committee of Directors to determine the Banks policy on remuneration packages for all employees. The Committee comprises majority of independent directors. Mr. Jagdish Capoor is the Chairman of the Committee and is not an independent Director. c) Shareholders Rights The Bank publishes its results on its website at www.hdfcbank.com which is accessible to the public at large. Besides, the same are also available on www.corpfiling.co.in. A half-yearly declaration of financial performance including summary of the significant events is presently not being sent separately to each household of shareholders. The Banks results for each quarter are published in an English newspaper having a wide circulation and in a Marathi newspaper having a wide circulation in Maharashtra. Hence, half yearly results are not sent to the shareholders individually. d) Audit Qualifications During the period under review, there is no audit qualification in the Banks financial statements. The Bank continues to adopt best practices to ensure regime of unqualified financial statements. e) Training of Board Members The Banks Board of Directors consists of professionals with expertise in their respective fields and industry. They endeavor to keep themselves updated with changes in global economy and legislation. They attend various workshops and seminars to keep themselves abreast with the changes in the business environment. f) Mechanism for evaluating non-executive Board Members The Nomination Committee evaluates the non-executive Board members every year. The performance evaluation of the members of the Nomination Committee is done by the Board of Directors excluding the Directors being evaluated. g) Whistle Blower Policy The Bank has adopted a Whistle Blower Policy pursuant to which employees of the Bank can raise their concerns relating to fraud, malpractice or any other activity or event which is against

the interest of the Bank or society as a whole.The Audit and Compliance Committee of the Bank has reviewed the functioning of the Whistle Blower mechanism. None of the personnel has been denied access to the Audit and Compliance Committee.

Critical Review of Westpac Banks Corporate Governance

Westpac Bank, along with the 2013 Annual Report also issues a Corporate Governance Statement, specifically detailing the policies and methods that are used for Westpac internal and external governance. From the overview of the corporate governance principles in Australia discussed previously in this report, there are three principles that are of significant impact to the banking industry and Westpac in particular;

Principle 3: Promote ethical and responsible decision-making Principle 4: Safeguard Integrity in Financial Reporting Principle 7: Recognise and Manage Risk

Westpac Bank in the 2013 Corporate Governance Statement covers the components of ethical and responsible decision-making quite extensively. Westpacs Code of Conduct in this statement is described as the standards of conduct expected of our people, both employees and contractors. It provides a set of guiding principles to help us make the right decision every time (Westpacs Corporate Governance Report 2013) Westpac also has a Code of Ethics for Senior Finance Officers, which covers conflicts of interest, the board, employees and contractors, whistleblower protection and also securities trading. Following on in the report is the Westpac Group Diversity Policy. This policy, among other goals aims to have a workforce profile that delivers competitive advantage through a deeper understanding of customers needs, and to create a truly inclusive workplace. (Westpac 2013)

As of the 30th September 2013, women employed by Westpac in roles in the Board of Directors, and Leadership roles were 30% and 42% respectively. (Westpac 2013) As of the 13th December 2013 the percentage of women on the top 200 Australian companies boards was 17.1%. (Australian Institute of Company Directors 2013) The graph shown in Appendix 1.2 illustrates the increase in womens representation on Australian boards. The current proportion of women in directors positions for Westpac is nearly double the average. This focus on diversity and to create a more balanced leadership team creates an image that Westpac is committed to diversity, setting an example to other organisations and stakeholders, thus creating a stronger corporate reputation. (Westpacs Corporate Governance Report 2013) In regards to a more diversified workplace and a stronger representation of women in management positions within Westpac Bank, there has not been the growth that has been promised by the current CEO, Gaily Kelly other than the board of directors. The current proportion of women in Westpac Banks workforce is currently 60% therefore ceteris paribus; there should be an equal amount in leadership positions. (WBC 2013) In reality however there are many variables that need to be taking into consideration, such as maternity leave and other factors affecting womens progression in the workplace.

Elstad, B, & Ladegard, G (2012) states that as women typically remain a minority in the business elite context, they could be subject to social barriers regardless of their ratio on a board because of a general low esteem resulting from gender stereotyping. This shows that there is much more to womens equality in the workplace than simply a quota or goal. The attitudes and culture of organisations needs to undergo a fundamental shift to genuinely increase not only the amount of women in leadership positions, but also the quality of their participation in leadership decisions.

Principle 4, which covers integrity in financial reporting, is also of great importance, not only in the realm of corporate governance, though also in the banking industry. In the Westpac Corporate Governance report (Westpacs Corporate Governance Report 2013) PwC is employed by Westpac as the external auditor, and attends all Board Audit Committee meetings and all annual general meeting held by Westpac.

Westpac states that the audit committee, which comprises of four independent, non-executive directors, has oversight of the integrity of the financial statements and financial reporting systems, as well as reviewing the performance of the internal audit function, while liaising with the external auditors. (Westpacs Corporate Governance Report 2013)

Risk management is especially crucial for the banking industry as discussed previously in this report, due to many internal and external factors. Westpac Bank has a clear and concise structure in relations to risk management, with a visible representation being shown in Appendix 1.3 from Westpacs Corporate Governance Report 2013. During the Global Financial Crisis of 2008, banks across the globe came under scrutiny from decisions that were perceived as unethical and irresponsible placing banking profits above suitable risk management. Westpac Bank has a comprehensive risk management structure, as well as a separate risk committee to oversee the banks risks management and exposure. Westpac breaks down its risk management approach to three key lines, with the first line of defense, consisting of the individual business units maintaining their own risk management processes and assurances. The second line of defense provides risk management oversight for the individual business units within the organisation. The third and final line of defense is the independent assurance, provided by PwC which overlooks all risk management processes and structures in place and reports directly to the board of directors, making sure that there is sufficient external independent analysis in place to avoid the bank exposing itself to unknown and unnecessary risk. During the Global Financial Crisis, Westpac and all Australian banks avoided catastrophic failure that occurred to some of the banks in America. Considering that in America corporate governance policies are mandatory law under the Sarbanes-Oxley Act, this poses an interesting discussion for further research. Westpac complies with a largely voluntary code of conduct in regards to risk management, and as such attempts to lead in governance management. With governance principles under law which can result in criminal and civil penalties for noncompliance, do organisations in America simply comply to avoid penalties?

A unique issue that is becoming more prevalent is the case of organisations outsourcing part of their supply chain production to overseas companies. Westpac Bank is known to outsource

numerous activities, such as loan maintenance, document imaging and call centre operators to countries such as Indonesia and India. Indias corporate governance, especially in regards to shareholder rights is much different to the standards within Australia. Agency costs can differ as there is still tight family control, while a separation of cash flow and voting rights from pyramidal and cross-holding structures can cause a concentration of ownership, disadvantaging minority shareholders. (Narayanaswamy, R, Raghunandan, K, & Rama, D 2012) ASIC (2006) identified that the importance of protection for minority shareholders was critical in corporate governance, from the work of IOSCOs Securities Task Force.

It is therefore important that Westpac understands the political and economical environment that outsourcing occurs within, and to ensure that the same governance principles apply. With the increasing use of outsourcing from Westpac and companies around the globe, it is important to make sure that Westpac is not partaking in comparable regulatory arbitrage.

Westpac Banking Corporation is one of the largest banks in Australia, and as per Accuity Bank Ratings (2013), the 42nd largest bank in the world. Due to the size of Westpac, this report concludes that Westpac has no choice but to be leaders in corporate governance, by ensuring that they not only comply with the recommendations but exceed them.

Conclusion
Corporate governance is a dynamic and ever changing topic that has increasing significance in the global economy. Using the 8 principles developed by the ASX that form the guidelines for corporate governance in Australia, Westpac Banking Corporations policies were critically analysed and several recommendations were listed that could improve further on Westpacs corporate governance. It

is noted that Westpac Bank complies with all the ASX recommendations in regards to corporate governance.

For Westpac Banking Corporation, the recommendations provided in this report will further strengthen an already strong and sustainable organisation. During the discussion of this report, it is evident that Westpac is a superb example of an organisation that excels and prides itself in strong, sustainable corporate governance. Over complying on the recommendations brought forward from the ASX, solidifies Westpacs position as a thought leader in Australian corporate governance.

Recommendations
From conducting a critical review of Westpacs current corporate governance policies and board composition, the below recommendations are deemed necessary to ensure that Westpac Bank continues to provide strong and sustainable growth to shareholders into the future.

It is important to note that Westpac Bank exceeds the recommendations and principles by the ASX. As Westpac is one of the largest organisations in the country care should be taken to ensure Westpac not merely excels in thought leadership, but leads in best practices as practiced.

Directors of different countries in which Westpac Bank operates in should be elected in Westpac Australias main board, or as an independent committee, for global insights and

expertise as the banking industry is no longer predominantly influenced by domestic forces. The proportion of 90% of independent directors within Westpacs board may create a lack of experience with the organisation throughout the board. Considering Westpac exceeds many of the recommendations brought forward by the ASX, a further study could be of benefit into the performance of the board, with a larger proportion of nonindependent directors. It has been noted that Westpac Bank outsources many activities overseas; it is highly recommended that a committee is created to ensure governance remains strong by liaising with outsourcing contractors and stakeholders throughout all business units. Develop a committee for diversity and gender equality to successfully implement the CEOs aim, of having a larger proportion of women in management positions within Westpac. Westpac Bank prides itself on exceeding corporate governance policies. This report recommends that further analysis of Westpacs corporate governance policies compared against global benchmarks such as the IOSCO. As the codes listed by the ASX are predominantly voluntary, international standards should be used as a benchmark to ensure Westpac bank remains as a thought leader in corporate governance both domestically and globally.