TOPIC- ETHICAL PRACTICES FOLLOWED BY INDIAN

COMPANIES IN THE FIELD OF FINANCE.

BUSINESS ETHICS AND

SUSTAINABILITY

CIA 1-B

Topic:
ETHICAL PRACTICES FOLLOWED BY INDIAN COMPANIES IN
THE FIELD OF FINANCE.

Aishwarya Reddy (1823563)

4 BBA FIB-A
 TABLE OF CONTENTS

SL.NO PARTICULARS PG NO.

1) Introduction to ethics in finance 3

2) Article review:
a) A Study on the Disclosure
Practices of Banks in India
with Reference to Indian
4-8
Accounting Standards
b) Corporate Governance
Practices Followed by Indian
Companies

3) YES BANK- code of conduct 9

4) Bibliography 10

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 INTRODUCTION TO ETHICS IN FINANCE

‘Ethics or moral philosophy is the branch of philosophy that involves systematizing, defending,
and recommending concepts of right and wrong conduct’. We need ethics for the following
reasons: to define accepted/acceptable behaviors, to promote high standards of practice, to
provide a benchmark for members to use for self evaluation, as a vehicle for occupational
identity and as a mark of occupational maturity.

Ethics in finance is one of the main things which everyone has to follow from small, medium
and big level company. It is considered important as without financial component no business
can run for a long time. Ethics in finance may vary from industry to industry but everyone is
liable to do their work at utmost good faith. There are mainly 5 key ethical guidelines or
principles a business should follow:

i. Profit, but not at Any Cost: Financial services are obliged to pursue profit maximization
within the applicable framework and not by seeking an advantage by conducting
activities that could be considered outside of that framework.
ii. The Client’s Interests First: Whoever the ‘client’ might be, an ethical approach to
Financial Services will always put the client’s interests first.
iii. A Commitment to Excellence: An ethical approach to financial services would see
professionals and the organizations that they represent constantly striving to do the best
job they possibly can under the circumstances.
iv. Ethics Prioritized Over Client Instruction: Unethical behavior in Financial Services can
also be provoked by clients themselves. Financial Services run ethically will prioritize
ethical conduct even when by doing so they may decline to undertake activities expressly
requested by the client, even at the risk of losing that client’s business.
v. Legal is Not Always Ethical: In Financial Services, there may be many instances where a
particular course of action may be considered unethical despite not directly contravening
laws or regulations. Choosing not to exploit technicalities that may mean an activity is
legal because it is considered unethical is the mark of a truly ethical approach

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 ARTICLE REVIEW

A. A Study on the Disclosure Practices of Banks in India with Reference to Indian

Accounting Standards
By: B G Poornima, Swizel Jesslin Alphonso and Y V Reddy.

A firm needs to consider every aspect of its external as well as internal environment and
take appropriate measures to satisfy them so as to build a favorable image of itself in the
society. Business transparency is an important element in this regard which helps various
stakeholders to have a clear image about the affairs of the firm. Therefore, firms adopt
various tools and policies to ensure that their business processes are carried out as per the
ethics of society and law.
Disclosure is one such tool that companies adopts in order to enable that their enterprise
is presented in a favorable manner. Disclosure may be defined as a practice of releasing
important information about various activities and affairs of the business. It enables
prospective investors to make future predictions of company’s performance based on the
company’s past records and hence judge whether the company is worth investing in.
Hence annual reports should be prepared in such a way that they create a positive image
of the company in the minds of the general public. However, many a time, companies
conceal or hide certain important and relevant matter so as to protect their image and
goodwill. This leads to conveying an undesirable image of the company to the society.
The disclosure must include the following:
1. The company’s financial statements such as income statement, balance sheet,
statement of cash flows, etc.
2. Supplementary schedules and notes following the financial statements.
3. Management’s discussion and analysis included in the company’s annual report.
4. Interim reports, quarterly earnings reports, press releases and other communications.
This study aims at ascertaining the disclosure practices of companies as per Indian
accounting standards. Therefore, banks of Indian origin are considered in the study.
Banks forming part of Nifty Bank Index have been considered as the sample for the
study. There are 12 banks included in this index comprising 7 private sector banks and

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public-sector banks. Presently, there are 29 accounting standards issued by ICAI to be
followed by all Indian companies. However, there are 23 accounting standards that are
applicable to the banking sector.
Determinants of Disclosure Practices: Determinants of disclosure practice refer to the
various factors that affect the level of disclosures among companies.
1. Size: A firm with a large size tends to undertake higher level of disclosures
because it has the expertise and knowledge to carry out better disclosures.
2. Profitability: Companies with higher profitability levels undertake higher
disclosures so as to be able to convey to their prospective investors their financial
soundness and thereby attract more public appreciation.
3. Leverage: Leverage of a firm indicates the firm’s ability to generate debt and
equity capital from the market.
4. Age: Age of a firm indicates the number of years a firm has been existing in the
market. Firms having many years of existence have experienced and mature
personnel who prepare the company’s annual reports and other financial
statements.
5. Ownership: The ownership status of a company indicates whether it is owned by
the public or private sector. Companies that are under government ownership and
control need to follow various rules and regulations of the government and hence
their disclosures are monitored by government officials. However, there is a
considerable amount of flexibility in operations for the private sector.

Disclosure practices among banks varied to an extent, with SBI and HDFC providing
the highest disclosures in the public and private sectors respectively, while IndusInd
Bank showed the lowest disclosures scores. However, since all the banks considered
in the study were listed banks, disclosure scores among public and private sector
banks did not vary to a great extent. Banks showed higher disclosure scores in later
years as compared to previous years. Thus, it shows a trend of improvement in
disclosure practices of banks in recent years. On the whole, this study has been able
to provide fruitful results and show that banks considerably follow disclosure
practices laid down by ICAI and hence provide a true and fair view of their business
affairs in India and through their branches and subsidiaries across the world.

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B. Corporate Governance Practices Followed by Indian Companies
By: Sukhwinder Kaur Dhanda, Bimal Anjum.

Corporate governance has come into existence due to the failures of the high profile and
strong companies. The failure of these companies basically related with their financial
issues or unethical ways. For ensuring the smooth running of businesses there is a proper
need of sound financial policy and appropriate ways. Corporate governance deals with
the rules and regulations for the smooth functioning of businesses. In developing
countries like India Corporate governance is linked with the economic development. If
the industry grows it will provide income and employments to the people and thus it will
increase the overall GDP rate. On the other side, it will reduce the cost of capital by
reducing the risk regarding the investment. In India, there are various rules and
regulations on corporate governance but implementation part is very slow. Corporate
Governance is about putting in place the structure, processes and mechanisms by which
business and affairs of the company or firm are directed and managed, in order to
enhance long term shareholder value through accountability of managers and enhancing
firm performance

I. Clause 49 of the Listing Agreement to the Indian stock exchange:

• As per Clause 49, for a company with an Executive Chairman, at least 50
per cent of the board should comprise independent directors. In the case of
a company with a non-executive Chairman, at least one-third of the board
should be independent directors.
• It would be necessary for chief executives and chief financial officers to
establish and maintain internal controls and implement remediation and
risk mitigation towards deficiencies in internal controls, among others.
• Clause VI (ii) of Clause 49 requires all companies to submit a quarterly
compliance report to stock exchange in the prescribed form. The clause
also requires that there be a separate section on corporate governance in
the annual report with a detailed compliance report.

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 • A company is also required to obtain a certificate either from auditors or
practicing company secretaries regarding compliance of conditions as
stipulated, and annex the same to the director’s report.
• The clause mandates composition of an audit committee; one of the
directors is required to be “financially literate”

II. Blue Ribbon Report:

• Members of the audit committee to be independent of the company (not
employees).
• The audit committee to be composed exclusively of non-executive
directors.
• The audit committee to consist of at least three members with specialist
expertise in the field of finance and accounting.
• The audit committee to have a written charter.
• The charter to be published at least every three years in a proxy statement.
• The external auditors to be accountable to the Board of Directors and
particularly to the audit committee.
• The external auditors to report annually on their independence from the
company.
• The audit committee to discuss the quality of accounting principles with
the external auditors.
• The audit committee to produce a report on its activities.

III. OECD Principles (2004)

• The corporate governance framework should promote transparent and
efficient markets, be consistent with the rule of law and clearly articulate
the division of responsibilities among different supervisory, regulatory and
enforcement authorities.
• The corporate governance framework should protect and facilitate the
exercise of shareholders’ rights.

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• The corporate governance framework should ensure the equitable
treatment of all shareholders, including minority and foreign shareholders.
All shareholders should have the opportunity to obtain effective redress
for violation of their rights.
• . The corporate governance framework should recognize the rights of
stakeholders established by law or through mutual agreements and
encourage active co-operation between corporations and stakeholders in
creating wealth, jobs, and the sustainability of financially sound
enterprises.
• The corporate governance framework should ensure that timely and
accurate disclosure is made on all material matters regarding the
corporation, including the financial situation, performance, ownership, and
governance of the company.
• The corporate governance framework should ensure the strategic
guidance of the company, the effective monitoring of management by the
board, and the board’s accountability to the company and the shareholders.

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 CODE OF CONDUCT FOR YES BANKERS

a) Conflict of interest;
b) Confidentiality and non-disclosure of information;
c) Fair dealing;
d) Acceptance of gifts/Benefits;
e) Product appropriateness and suitability;
f) Assets and resource usage;
g) Intellectual property;
h) KYC and AML;
i) Staff account monitoring policy;
j) Whistle blower policy;
k) Insider trading policy;
l) Policy regarding prevention of sexual harassment;
m) Business expenses;
n) Personal and professional conduct;
o) YES personality;
p) Leave and time discipline;
q) Business communication and correspondence;
r) Public representation;
s) Non-smoking policy;
t) Environmental considerations;
u) Audit and investigation;
v) Regulatory compliance;
w) Handling of market news/Information.

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 BIBLIOGRAPHY

B G Poornima, S. J. (2016). A Study on the Disclosure Practices of Banks in India with

Reference to Indian Accounting Standards. The IUP Journal of Accounting Research &
Audit Practices,, xv, No. 4.

Sukhwinder Kaur Dhanda, B. A. (n.d.). CORPORATE GOVERNANCE PRACTICES

FOLLOWED BY INDIAN COMPANIES . International Journal of Arts & Sciences.

(2013, march). Retrieved from https://www.yesbank.in/pdf/employee_code_of_conduct

(n.d.). Retrieved from https://www.morganintl.com/blog/finance-treasury/5-key-ethical-

guidelines-for-best-practice-in-financial-services/

(n.d.). Retrieved from https://www.morganintl.com/blog/finance-treasury/5-key-ethical-

guidelines-for-best-practice-in-financial-services/

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