ADITYA PURI points out that good corporate governance can help a business perform better

Aditya Puri's office in HDFC Banks' new corporate building in Worli has a dartboard and a golf putting mat. When BW's photographer asked Puri to pose with his clubs or in front of his dartboard, the managing director refused. "I don't want my board to think I'm not working," he joked.

Or maybe he said it only half-jokingly. Over the past eighteen months, says Puri, the role of the board and its importance has been institution-alised. Clear policies have been put in place in regards to human resources, shareholders, depos-itors and borrowers. "The aim is to ensure that all our policies are carefully laid out and defined, so you know what you are dealing with," he said. HDFC Bank's board now is clearly an entity that senior management must take very seriously.

Corporate governance is often seen as some-thing that company managements have to do, whether they like it or not. But it's clear that there are benefits too - markets and shareholders trust companies which have a clean and proven record. And it's always good to keep investors happy, especially when you might be asking them for more money in the near future.

All that investor goodwill does translate into real money even now. Rating agency Crisil recently studied the effect of corporate governance levels on the market valuations of 40 Indian companies. They found that other things being equal, superior governance practices increase market valuations. How much of HDFC Bank's 28 per cent increase in share price over the past year is due to its new corporate governance initiatives is hard to say, but it's clear that investors have been hardly displeased. (Compare that 28 per cent rise to the BSE Bankex, a banking sector benchmark index, that has risen by around 8 per cent over the same period.)

HDFC Bank has gone in for a corporate gov-ernance rating from Crisil. The agency awarded the highest rating of GVC 1 to the bank. Crisil confirms that HDFC Bank's board now has a majority of independent directors who, in the rating agency's opinion, adequately perform their role.

Though the bank scores well on issues like customer service, its compensation levels are moderate, though it offers stock options to all its employees. And while it is one of the few private sector banks that have met or exceeded thier targets (set by the RBI) for lending to the priority sectors, the bank has not been able to meet its target for loans to weaker sections and direct agriculture.

A governance problem faced last year concer-ned its entry into housing finance, which would put it in direct competition with its parent HDFC, creat-ing a possible conflict of interest. This was solved with an arrangement, in which the bank sources housing loans on behalf of HDFC for a fee, and a large portion of the loans originated by the bank are sold back to it. Crisil feels that the fee structure, which is subject to regular review, is a commercial decision. HDFC Bank is likely to hit the capital market early next year to raise money for its growth, though the board is yet to take a decision. A clean governance chit can only aid its efforts.