Name: Hania Usmani.

Class : SY.B.B.I.

Roll No: 32.

Subject : Corporate Law.

Project On : Corporate Governance.

 Corporate Governance.
Corporate governance is the set of processes, customs, policies, laws, and
institutions affecting the way a corporation (or company) is directed,
administered or controlled. Corporate governance also includes the relationships
among the many stakeholders involved and the goals for which the corporation is
governed. The principal stakeholders are the shareholders, management, and
the board of directors. Other stakeholders include employees,
customers, creditors, suppliers, regulators, and the community at large.

Corporate governance is a multi-faceted subject. An important theme of

corporate governance is to ensure the accountability of certain individuals in an
organization through mechanisms that try to reduce or eliminate the principal-
agent problem. A related but separate thread of discussions focuses on the
impact of a corporate governance system in economic efficiency, with a strong
emphasis on shareholders' welfare. There are yet other aspects to the corporate
governance subject, such as the stakeholder and the corporate governance
models around the world.

There has been renewed interest in the corporate governance practices of

modern corporations since 2001, particularly due to the high-profile collapses of
a number of large U.S. firms such as Enron Corporation and MCI Inc. (formerly
WorldCom). In 2002, the U.S. federal government passed theSarbanes-Oxley Act,
intending to restore public confidence in corporate governance.

Definition

A Board Culture of Corporate Governance, business author Gabrielle O'Donovan

defines corporate governance as 'an internal system encompassing policies,
processes and people, which serves the needs of shareholders and other
stakeholders, by directing and controlling management activities with good
business savvy, objectivity, accountability and integrity. Sound corporate
governance is reliant on external marketplace commitment and legislation, plus a
healthy board culture which safeguards policies and processes'.
Report of SEBI committee (India) on Corporate Governance defines corporate
governance as the acceptance by management of the inalienable rights of
shareholders as the true owners of the corporation and of their own role as
trustees on behalf of the shareholders. It is about commitment to values, about
ethical business conduct and about making a distinction between personal &
corporate funds in the management of a company.” The definition is drawn from
the Gandhian principle of trusteeship and the Directive Principles of the Indian
Constitution. Corporate Governance is viewed as ethics and a moral duty.

Impact of Corporate Governance.

The positive effect of corporate governance on different stakeholders ultimately
is a strengthened economy, and hence good corporate governance is a tool for
socio-economic development

Principles
Key elements of good corporate governance principles include honesty, trust and
integrity, openness, performance orientation, responsibility and accountability,
mutual respect, and commitment to the organization.

Systemic problems of corporate governance

 Demand for information: A barrier to shareholders using good
information is the cost of processing it, especially to a small shareholder. The
traditional answer to this problem is the efficient market hypothesis (in
finance, the efficient market hypothesis (EMH) asserts that financial markets
are efficient), which suggests that the small shareholder will free ride on the
judgments of larger professional investors.
 Monitoring costs: In order to influence the directors, the shareholders
must combine with others to form a significant voting group which can pose a
real threat of carrying resolutions or appointing directors at a general meeting.
 Supply of accounting information: Financial accounts form a crucial
linkin enabling providers of finance to monitor directors. Imperfections in the
financial reporting process will cause imperfections in the effectiveness of
corporate governance.
HDFC Bank was incorporated in August 1994, and, currently has an nationwide
network of 1,506 Branches and 3,573 ATM's in
635 Indian towns and cities.

Corporate Governance of HDFC Bank

HDFC Bank's Corporate Governance Policy has been adopted keeping in mind
the importance of attaining fairness for all stakeholders, as well as achieving
organizational efficiency.
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 recognised 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 maximisation 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.
Composition Of 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 securities issued by the
Bank are listed. The Board has strength of 12 Directors as on March 31, 2008.
All Directors other than Mr. Aditya Puri, Mr. Harish Engineer and Mr. Paresh
Sukthankar are non-executive directors. The Bank has five independent
directors and six 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 10 Committees

and Chairman of more than 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.

- Mr. Jagdish Capoor, Mr. Keki Mistry, Mrs. Renu Karnad, Mr. Aditya Puri, Mr.
Harish Engineer and Mr. Paresh Sukthankar are non-independent Directors
on the Board

- Mr. Arvind Pande, Mr. Ashim Samanta, Mr. Gautam Divan, Mr. C. M. Vasudev
and Dr. Pandit Palande are independent directors on the Board.

- Mr. Keki Mistry and Mrs. Renu Karnad represent HDFC Limited on the Board
of the Bank.

- The Bank has not entered into any materially significant transactions during
the year, 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.
Board Committes

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 Board’s Committees are as follows:

Audit and Compliance Committee

Compensation Committee

Investors' Grievance (SHARE) Committee

Risk Monitoring Committee

Credit Approval Committee

The Premises Committee

Nomination Committee

Fraud Monitoring Committee

Customer Service Committee

Audit and Compliance Committee
The Audit and Compliance Committee of the Bank is chaired by Mr. Arvind Pande.
The other members of the Committee are Mr. Ashim Samanta, Mr. C. M. Vasudev,
Mr. Gautam Divan and Dr. Pandit Palande. All the members of the Committee are
independent directors and Mr. Gautam Divan is a Chartered Accountant and a
financial expert.

The terms of reference of the Audit Committee are in accordance with Clause 49
of the Listing Agreement entered into with the Stock Exchanges in India, and inter
alia includes the following:

Overseeing the Bank’s financial reporting process and ensuring correct,

adequate and credible disclosure of financial information;

Recommending appointment and removal of external auditors and fixing of

their fees;

Reviewing with management the annual financial statements before submission

to the Board with special
emphasis on accounting policies and practices, compliance with accounting
 standards and other legal requirements concerning financial statements;

Reviewing the adequacy of the Audit and Compliance functions, including their
policies, procedures, techniques and other regulatory requirements; and

other terms of reference as may be included from time to time in clause 49 of

the listing agreement.

The Board has also adopted a charter for the Audit Committee in connection with
certain United States regulatory standards as the Bank’s securities are also listed
on the New York Stock Exchange.

Compensation Committee

The Compensation Committee reviews the overall compensation structure and

policies of the Bank with a view to attract, retain and motivate employees,
consider grant of stock options to employees, reviewing compensation levels of
the Bank's employees vis-Ã -vis other banks and industry in general. The Bank's
compensation policy provides a fair and consistent basis for motivating and
rewarding employees appropriately according to their job / role size,performance,
contribution, skill and competence.
Mr. Jagdish Capoor, Mr. Ashim Samanta, Mr. Gautam Divan and Dr. Pandit
Palande are the members of the Committee. The Committee is chaired by Mr.
Jagdish Capoor. All the members of the Committee other than Mr. Capoor are
independent directors.

Investors' Grievance (SHARE) Committee

The Committee approves and monitors transfer, transmission, splitting and

consolidation of shares and bonds and allotment of shares to the employees
pursuant to Employees Stock Option Scheme. The Committee also monitors
redressal of complaints from shareholders relating to transfer of shares, non-
receipt of Annual Report, dividends, etc.

The Committee consists of Mr. Jagdish Capoor, Mr. Aditya Puri and Mr. Gautam
Divan. The Committee is chaired by Mr. Capoor. The powers to approve share
transfers and dematerialization requests have been delegated to executives of the
Bank to expedite the process of share transfers..

As on March 31, 2009, 41 instruments of transfer representing 2,312 shares were

pending. These have since been processed. The details of the transfers are
reported to the Board of Directors from time to time.

During the year under review 197 complaints were received from the
shareholders. All the complaints were attended to and as at 31st March 2009 no
complaints remained unattended. Besides 10,409 letters were received from the
shareholders relating to change of address, nomination requests, ECS Mandates,
queries relating to annual report, amalgamation, request for revalidation of
dividend and fractional warrants and other investor related matters.

Risk Monitoring Committee

The Committee has been formed as per the guidelines of Reserve Bank of India
on the Asset Liability Management / Risk Management Systems. The Committee
develops Bank's credit and market risk policies and procedures, verifies
adherence to various risk parameters and prudential limits for treasury
operations and reviews its risk monitoring system. The Committee also ensures
that the Bank's credit exposure to any one group or industry does not exceed the
internally set limits and that the risk is prudentially diversified.

The Committee consists of Mrs. Renu Karnad, Mr. Aditya Puri Mr. C. M. Vasudev
and Mr. Paresh Sukthankar (inducted as member of the Committee w.e.f. January
14, 2009). The Committee is chaired by Mrs. Renu Karnad.

Credit Approval Committee

The Credit Approval Committee approves credit exposures, which are beyond the
powers delegated to executives of the Bank. This facilitates quick response to the
needs of the customers and speedy disbursement of loans.

The Committee consists of Mr. Jagdish Capoor, Mr. Aditya Puri, Mr. Keki Mistry
and Mr. Gautam Divan. The Committee is chaired by Mr. Capoor.

The Premises Committee

The Premises Committee approves purchases and leasing of premises for the
use of Bank's branches, back offices, ATMs and residence of executives in
accordance with the guidelines laid down by the Board.

The Committee consists of Mrs. Renu Karnad, Mr. Aditya Puri, Mr. Ashim
Samanta and Dr. Pandit Palande. The Committee is chaired by Mrs. Renu Karnad.

Nomination Committee

The Bank has constituted a Nomination Committee for recommending the

appointment of independent / non-executive directors on the Board of the Bank.
The Nomination Committee scrutinizes the nominations for independent / non-
executive directors with reference to their qualifications and experience. For
identifying 'Fit and Proper' persons, the Committee adopts the following criteria
to assess competency of the persons nominated:

Academic qualifications, previous experience, track record; and

Integrity of the candidates.

For assessing the integrity and suitability, features like criminal records, financial
position, civil actions undertaken to pursue personal debts, refusal of admission
to and expulsion from professional bodies, sanctions applied by regulators or
similar bodies and previous questionable business practices are considered.

The members of the Committee are Mr. Arvind Pande, Mr. Ashim Samanta and Dr.
Pandit Palande. The Committee is chaired by Mr. Arvind Pande. All the members
of the Committee are independent directors.

Fraud Monitoring Committee

Pursuant to the directions of the Reserve Bank of India, the Bank has
constituted a Fraud Monitoring Committee, exclusively dedicated to the
monitoring and following up of cases of fraud involving amounts of Rs.1 crore
and above. The objective of this Committee is the effective detection of frauds
and immediate reporting thereof to regulatory and enforcement agencies of
actions taken against the perpetrators of frauds.

The terms of reference of the Committee are as under:

Identify the systemic lacunae, if any, that facilitated perpetration of the fraud
and put in place measures to plug the same;

Identify the reasons for delay in detection, if any, reporting to top

management of the Bank and RBI;

Monitor progress of CBI / Police Investigation and recovery position;

Ensure that staff accountability is examined at all levels in all the cases of
frauds and staff side action, if required, is completed quickly without loss of
time;

Review the efficacy of the remedial action taken to prevent recurrence of

frauds, such as strengthening of internal controls;

Put in place other measures as may be considered relevant to strengthen

preventive measures against frauds;
The members of the Committee are Mr. Jagdish Capoor, Mr. Aditya Puri, Mr. Keki
Mistry, Mr. Arvind Pande and Mr. Gautam Divan (inducted as member of the
Committee w.e.f. January 14, 2009). The Committee is chaired by Mr. Jagdish
Kapoor.

Customer Service Committee

The Committee monitors the quality of services rendered to the customers and
also ensures implementation of directives received from RBI in this regard. The
terms of reference of the Committee are to formulate comprehensive deposit
policy incorporating the issues arising out of death of a depositor for operations
of his account, the product approval process, the annual survey of depositor
satisfaction and the triennial audit of such services.
The members of the Committee are Mr. Keki Mistry, Mr. Arvind Pande, Dr. Pandit
Palande and Mr. Harish Engineer (inducted as member of the Committee w.e.f.
January 14, 2009). The Committee is chaired by Mr. Arvind Pande.

Ownership Rights
Certain rights that a shareholder in a company enjoys :

To transfer the shares.

To 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 .

To inspect the minute books of general meetings and to receive copies thereof
after complying with the procedure prescribed in the Companies Act, 1956.

To appoint or remove director(s) and auditor(s) and thus participate in the

management through them.

To proceed against the company by way of civil or criminal proceedings.

To apply for the winding-up of the company.

To receive the residual proceeds upon winding up of a company.

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.

Promoters Right (HDFC LTD.)

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 Bank’s 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.

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.

Dividend Policy

Bank has had a track record of moderate but steady increases in dividend
declarations for the last 10 years and dividend payout ratio in the last few years
has been in the range of 20-25 %. Your Bank's dividend policy is based on the
need to balance the twin objectives of appropriately rewarding shareholders with
cash dividends and of retaining capital to maintain a healthy capital adequacy
ratio to support future growth. In line with this policy and recognisation of healthy
performance during 2007-08, your directors pleased to recommend a dividend of
85% for the year ended on March 31,2008 as against 70% for the year ended
March 31, 2007. This dividend shall be subject to distribution tax to be paid by the
Bank but will be tax-free in the hands of the members.

Fair Practice Code For Lending.

The Bank has adopted the following fair practices code in relation to its lending
activities:

Applications for loans and their processing

The bank would have loan application forms for retail advances and credit
cards. These would include information about the fees/charges, if any,
payable for processing, the amount of such fees refundable in the case of non
acceptance of application, pre-payment options and any other matter which
affects the interest of the borrower, so that a meaningful comparison with that
of other banks can be made and an informed decision can be taken by the
borrower.

As part of the wholesale banking business, the bank has various segments to
which credit facilities are provided for their business requirements. These
include a wide range of customers and range from small & medium
enterprises to large corporate borrowers. The bank has a process for
identification of target customers to whom facilities can be provided based on
customer selection and risk assessment for that segment. Thus, the focus is
on contacting prospective customers and encouraging them to avail of
banking services from HDFC Bank based on the incremental value we can
add to a customer's business, rather than customers making applications to
the Bank for facilities / services. Thus, for the wholesale banking segment, we
do not have any standardized application forms to be submitted by
prospective customers.

The bank would give an acknowledgement for receipt of all retail loan
applications. Time-frame within which loan applications will be processed
would be indicated in the acknowledgement of such applications
.
 The bank would verify the loan applications within a reasonable period of
time. If additional details / documents are required, it would intimate the
borrowers immediately.

In the case of all borrowers seeking loans, the bank would convey in writing,
the main reason/reasons which, in the opinion of the bank after due
consideration, have led to rejection of the loan applications. In case the
proposal does not meet the internal risk parameters of the bank, the borrower
would be intimated accordingly.

Loan appraisal and terms/conditions

The bank would ensure that there is proper assessment of credit application
made by borrowers. The assessment would be in line with the bank's credit
policies & procedures and relevant regulatory guidelines.
The bank would convey to the borrower the credit limit along with the terms
and conditions thereof and obtain the borrower's acceptance of these terms
and conditions, given with his full knowledge on record.
In respect of approved credit proposals, terms and conditions and other
caveats governing credit facilities given by the bank would be reduced in
writing and duly certified by a bank official. A copy of the loan agreement
along with a copy each of all enclosures quoted in the loan agreement may be
furnished to the borrower if asked for.
The sanction letter or the loan agreement would stipulate if the credit facilities
are solely at the discretion of the bank. The bank may disallow facilities that
involve drawings beyond the sanctioned limits, honouring cheques issued for
the purpose other than specifically agreed to in the credit sanction, and
drawing on a borrowal account on its classification as a non-performing asset
or on account of non-compliance with the terms of sanction. Further the bank
does not have an obligation to meet additional requirements of the borrowers
on account of growth in business etc. without proper review of credit limits.
Any increase/additional limits/changes in facilities requested by the customer
would be considered by the Bank based on its internal policies and
assessment and the Bank is not under any obligation to accede to the
specific request of the borrower.

In the case of lending under consortium arrangement, the bank would

 endeavour to evolve procedures to complete appraisal of proposals in a time
bound manner to the extent feasible, and communicate its decisions on
financing or otherwise within a reasonable time, in co-ordination with other
members of the consortium.

Disbursement of loans including changes in terms and conditions

The bank would ensure timely disbursement of loans sanctioned in

conformity with the terms and conditions governing such sanction. It would
give notice of any change in the terms and conditions including interest rates,
service charges etc.

Revisions to the Bank's PLR are notified through the Bank's website. They are
also covered in leading financial newspapers. Any revisions in this are
applicable to all PLR linked facilities from the date of PLR revision. For
facilities linked to other benchmark rates, these are revised as per prior
agreement with the customer, the process for which is covered in the
sanction letter duly accepted by the customer on the loan agreement. For all
other facilities, any change in interest rates is with prior intimation to the
customer. All revisions in other fees and charges are also informed to the
customer in advance.

Post disbursement supervision

The bank would carry out post-disbursement supervision in accordance with
normal banking practice, the terms of sanction, and the guidelines issued by
the Reserve Bank of India from time to time.

Before taking a decision to recall / accelerate payment or performance under

the agreement or seeking additional securities, the bank would give notice to
borrowers, as specified in the loan agreement or a reasonable period, if no
such condition exits in the loan agreement.

The bank would release all securities on receiving payment of loan or

realisation of loan subject to any legitimate right or lien for any other claim
that it may have against borrowers. If such right of set off is to be exercised,
borrowers shall be given notice about the same with full particulars about the
remaining claims and the provisions under which the bank is entitled to retain
 the securities till the relevant claim is settled/paid.

General
The bank would refrain from interference in the day-to-day affairs of the
borrowers except for what is provided in the terms and conditions of the loan
sanction documents (unless new information, not earlier disclosed by the
borrower, has come to the notice of the bank). This however does not imply
that the bank's right of recovery and enforcement of security under law as
well as appointment of nominee directors, where required, is affected by this
commitment.

The bank would not discriminate on grounds of sex, caste and religion in the
matter of lending. However, this does not preclude the bank from
participating in credit-linked schemes framed for weaker sections of society.

In the matter of recovery of loans, the bank would not resort to undue
harassment or use of force.

In case of receipt of request for transfer of borrowal account, either from the
borrower or from a bank/financial institution, which proposes to take- over the
account, the consent or otherwise i.e., objection of the bank, if any, would be
conveyed within 21 days from the date of receipt of request.

Corporate Governance Ratings.

The bank was among 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 entity's 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, which indicates that the bank's capability with respect to wealth
creation for all its stakeholders while adopting sound corporate governance
practices is the highest.