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"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs.

" "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

Introduction:
An ethical bank, also known as a social, alternative, civic, or sustainable bank, is a bank concerned with the social and environmental impacts of its investments and loans. Ethical banks are part of a larger societal movement toward more social and environmental responsibility in the financial sector. This movement includes: ethical investment, socially responsible investment, corporate social responsibility, and is also related to such movements as the fair trade movement, ethical consumerism, boycotting, etc. Other areas, such as fair trade, have comprehensive codes and regulations to which all industries that wish to be certified as fair trade must adhere. Ethical banking has not developed to this point; because of this it is difficult to create a concrete definition distinguishing exactly what it is that sets an ethical bank apart from conventional banks. Ethical banks are regulated by the same authorities as traditional banks and have to abide by the same rules. While there are differences between ethical banks, they do share a common set of principles, the most prominent being transparency and social and/or environmental aims of the projects they finance. Ethical banks sometimes work with narrower profit margins than traditional ones, and therefore they may have few offices and operate mostly by phone, Internet, or mail. Ethical banking is considered one of several forms of alternative banking.

History
Historically banks have been viewed solely as financial institutions, which should concern themselves with all things financial. Morality has not entered the equation. This public view has allowed banks significant leeway with concern to ethical standards. This is because they have not been associated with the actions taken by the businesses they lend to. Banks have also stated that a reason for not mounting the new challenges that sustainability presents is that such inspection would require interference in the activities of clients. However with changing social demands, and as more is known about the effects that banks can have through their lending policies, banks have begun to feel pressure from the general public, NGOs, governments, and the like to go beyond conventional business management. For example in the mid-1990s the Cooperative Bank asked 6,000 customers what their thoughts were on ethical banking; 84% responded that it was a good idea. In fact the cooperative bank was formed in response to the growing consumer base looking for ethically oriented banks.

Ethical initiatives
Numerous ethical banks (as well as some conventional banks) allow customers to contribute to organizations that have positive societal/environmental impacts either in the local community or in developing countries. Examples include an evaluation of the energy efficiency of a home and potential improvements in this; carbon-offsets; credit cards that benefit charities or lower interest rate loans for low emission cars.

Community involvement
Ethical banks excel in community involvement, as do other financial institutions such as credit unions. Community involvement is not limited to ethical banks as conventional banks also partake in such actions. The following are a few examples of community involvement done by ethical banks, credit unions, and conventional banks:

Affordable housing projects (ex. Vancity & Citizens bank) Page | 1

"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

Many banks/credit unions try to increase financial literacy in the community Give local scholarships & sponsorships. Financially support community events (for ex. each year TD Canada trust donates to a local cause).

Environmental standards for lending


Environment is a key focus amongst ethical banks (in this field specially called sustainability or green banks) as well as amongst many conventional banks that wish to appear more ethically oriented or that see switching to more environmental practices to be to their advantage. Some view this move as green washing. In general bankers "consider themselves to be in a relatively environmentally friendly industry (in terms of emissions and pollution). However, given their potential exposure to risk, they have been surprisingly slow to examine the environmental performance of their clients. A stated reason for this is that such an examination would require interference with a client's activities." While the desire to not meddle in the business of the client is valid, one could also note that banks are required to interfere in the business of their clients regularly to ensure that the clients business plan is viable before issuing them a loan. The kind of analysis that all banks partake in is termed a single bottom line analysis (this analysis only considers financial performance). It is arguable whether or not performing a triple bottom line analysis (an analysis that takes into account environmental, social, and financial performance) would be any more intrusive. BASIC OBJECTIVES OF MANAGEMENT: Peter Drucker, one of the guru of modern management says there are three basic objectives of modern management: Survival Growth Profit But he is disturbed with the only objective of materialistic achievements by hook or by crook, and therefore concerned for human values and ethics which we call spiritualism. What has happened in USA in 1980s hire & fire how this is balanced is the Major question of today. ETHICAL Foundation: Seven Puzzle Pieces to a Solid Personal Evaluate Constantly Tone at the Top Heart Integrity character Accountability Long lasting Seven Laws of the Harvest: We reap only what we sow. We reap the same kind as we sow. We reap in a different season than we sow. We reap more than we sow. We reap in proportion to what we sow. We reap a full harvest only if we persevere. We cannot do anything about last years harvest, but we can do something about this years harvest. Definition of Ethics: Derived from the Greek word ethos, which means custom, habit, and way of living Definition: the discipline and practice of applying value to human behavior, resulting in meaningful conduct. CONSTITUENTS OF ETHICS : Character Morals Ideals Ethics is the value system to which the civilized society conforms to. Every body is important and taken care of. The principal of live and let live with spiritual attitude. There is no space for misguiding, falsification or moral turpitude. ETHICS & LAW : To better understand ethics let us understand and contrast the definition of ethics and law Law is a consistent set of universal rules that are : widely published, generally accepted and usually enforced. These rules describe the ways in which people are required to act in society. Ethics defines: what is good for the individual and for society and establishes the nature of duties that people owe to oneself and others in society

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"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

ETHICS: Reflection in a companys operations of the values and moral principles used in the communities in which they operate Successful markets and corporate performance are founded on a commitment to basic ethical principles aligned as much as possible to the interests of individuals, corporations and society. Ethical standards may be expressed in a companys formal conduct requirements, or contained in generally stated principles that guide a companys preferred conduct or behavior. Most companies have put in place a code of ethics for its employees to conduct themselves in a particular manner while doing business. In Banking Industry code of ethics has been implemented for employees through: OSR Bipartite settlement

Discussion: Judging what is ethical


"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

Aristotle
For Aristotle, lawfulness is important in the measurement of morality, as is equality and justice. Whether an action is or is not in accordance with the law is an important measurement of morality for Aristotle. Many banks do business in accordance with the law in all practices. They may also specifically seek to do business with law-abiding clients. Nevertheless this can be problematic, as laws vary internationally. This means that a bank could be viewed as ethical even while funding clients who lawfully conduct business in harmful manners. However this measurement is challenged by Aristotle's statement: "what is just in transactions is something equitable, and what is unjust is something inequitable" (p. 84) Aristotle 2002. This means that a bank needs to take into account the unjust/inequitable behavior of its borrowers to qualify as an ethical bank. For example, lending to a law-abiding corporation that does not pay its employees a sufficient living wage would be immoral.

Ethics
"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

Business Ethics:
The concept has come to mean various things to various people, but generally its coming to know what it right or wrong in the workplaces and doing what right this is in regard to effects of products or services and in relationships with stakeholders. Business ethics is now a management discipline. Business ethics has come to be considered a management discipline, especially since the birth of the social responsibility movement in the 1960s. Business ethics is a form of the art of applied ethics that examines ethical rules and principles with in commercial context, the various moral or ethical problems that can arise in a business setting any special duties or obligation that apply to persons who are engaged in commerce. Business ethics has two board areas one is, Managerial mischief and other is Moral mazes.

Managerial mischief: It includes illegal, unethical, or questionable practices of individual managers


or organizations, as well as the cause of such behaviors and remedies to eradicate them. There has been a great deal written about managerial mischief, leading many to believe that business ethics is merely a

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"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

matter of preaching the basics of what is right or wrong. More often, through business ethics is matter of dealing with dilemmas that have no clear indication of what is right or wrong.

Moral mazes: The other broad area of business ethics is moral mazes of management and includes the
numerous ethical problems that managers must deal with on a daily basis such as potential conflicts of interest, wrongful use of resources mismanagement of contract and agreement etc.

Ethics, Etiquette and Morality:


The terms ethics, etiquette and morality have been widely used in the study of business ethics. There are two extremes of thinking in this regard. One school suggests there is hardly any difference between hems. Another extreme is of the opinion that they are not synonymous in the applied sense of the term. We now discuss their differences. Garret Thomas says that ethics is concerned primarily with the relationship of business goals and objectives to specifically human ends. It studies the implications of acts on the goods on the individuals, the firms, the business community and the society. Thus business ethics studies the special obligations which a man accepts when he becomes a part of business. For example, philosophical, ethics, religious ethics, social ethics, business ethics and above all normative and professional ethics. Morality on the other hand, is concerned with establishing and maintaining relationship amoung employers and employees, producers, clients and competitors, firms and government and so on. Some say that morality is a term used to cover those practices that are considered right or wrong. It also refers to the understanding of value that are embedded, fostered and pursed by those practices. The means, morality teaches how human treat each other to promote welfare, growth and development. Examples of common morality include respect for others, mutual assistance, restraint on arming others, mutual cooperation team, spirit, fraternity, fellow feeling and the like. Finally etiquette refers to any special code of behavior or courtesy in our society. For example, it is considered bad etiquette to talk loudly in front of seniors. Also it is thought of good to respond someones help by saying Dhonnobad. Good business etiquette typically calls writing follow up letters after meetings, returning phone calls and dressing in official attire.

Internal vs. external banking ethics


Conventional banks deal with mostly internal ethics, ethical banks add to internal concerns by applying external ethics.

Internal ethics: processes in banks


Internal ethics are concerned with the well being of employees, employee and customer satisfaction, benefits, wages, unionization, fair sex and race representation, and the banks environmental standing. Environmentally the potential combined effect of banks switching to more environmentally friendly practices (i.e. less paper use, less electrical use, solar power, energy efficient light bulbs, more conscientious employee travel policies with concern to commuting and air travel) is huge. However when compared with many other sectors of the economy banks do not incur the same burden of energy, water and paper use. Many times such energy efficient changes are not based on moral concern but on cost efficiency.

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"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

External ethics: products of the banks relationships/products


External ethics are concerned with the wider ramifications of banks actions. External ethics looks at the impacts that their business practices, such as who they loan to or invest in, will have on society and the environment. In applying external ethics, one looks at how the products of banks can be used unethically, for example how borrowers use the money that is lent out by the bank. ETHICS FOR THE MANAGEMENT: For the Management, Standard and Ethics in banking industry have been directed by the regulator through FAIR PRACTICE CODE through DISCLOSURES OF: Service charges Rate of interest on deposit and advances Salient features of lending schemes Display of notice board for vigilance, compliance officer, officer dealing in deficiencies in customer services complaint etc Charter of customers right PURPOSE OF ETHICS: Ethics are the guiding principles. Where the proposed business activity/ operation of the company borders on the unknown, the company needs to apply the ethics principle to decide on the project. Ethics help make relationships mutually pleasant and productive- imbibes a sense of community among members- a sense of belongingness to society. RBI----Ethics in Banking Industry: Ethics in Banking Industry Circular issued by RBI/2009-10/159 DBS. CO. FRMC. BC. No. 7 /23.04.001/2009-10 September 16, 2009 on: Fraud Risk Management System in banks Role of Chairmen / Chief Executive Officers It starts as: As you are aware, the incidence of frauds in the banks has been showing an increasing trend over the recent years, both in terms of number of frauds and the amounts involved. It has been observed that the trend is more disquieting in retail segment especially in housing and mortgage loans, credit card dues, internet banking, etc. Moreover, it is a matter of concern that instances of frauds in the traditional areas of banking such as cash credit, export finance, guarantees, letters of credit etc remain unabated. WHY HAVE A CODE OF ETHICS: To define acceptable behavior To promote high standards of practice To provide a benchmark for self-evaluation To establish a framework for professional behavior and responsibilities As a vehicle for occupational identity As a mark of occupational maturity. Creating the Ethical Imperative: Written code of ethics Employee commitment Employee training Discipline process Full disclosure Building expectations Resolution process conflict management NEED OF ETHICS IN GOVERNANCE: In fact corporate governance with ethics goes far beyond company law or Banking law or any other Laws. The quantity, quality and frequency of financial and managerial disclosures, Extent to which the BOD exercise their fiduciary responsibilities towards share holders, and Commitment to run transparent companies that maximize long term shareholder value Create confidence in the minds of all the stake holders like DEPOSITORS, INVESTORS, SHARE HOLDERS, EMPLOYEES AND SOCIETY AT LARGE ALL THESE CANNOT BE LEGISLATED AT ANY LEVEL AS ETHICS PLAYS A VITAL ROLE. TEN ETHICS BY COMPUTER ETHICS OF INSTITUTE: 1) You shall not use a computer to harm other people. 2) You shall not interfere with other people's computer work. 3) You shall not snoop around in other people's files. 4) You shall not use a computer to steal. 5) You shall not use a computer to bear false witness. 6) You shall not use or copy software for which you have not paid. 7) you shall not use other people's computer resources without authorization. 8) you shall not appropriate other people's intellectual output. 9) You shall think about the social consequences of the program you write. 10) You shall use a computer in ways that show consideration and respect. Page | 5

"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

Types of Right v. Right Dilemmas: Dilemmas Truth v. Loyalty Individual v. Community Short-Term v. Long-Term Justice v. Mercy Its right to tell the truth, but it is also right to be kind and considerate of peoples feelings and emotions. Its right to apply rules and procedures equally, without favoritism, but it is also right to give special treatment to hard-working, dependable, and productive employees. Examples of Right v. Right Dilemmas (contd) Its right to spend more time adding more quality to your work but it is also right to meet deadlines and avoid diminishing returns on your efforts. Its right to be concerned about short-term results, but it is also right to focus on long-term growth and stability. Its right not to share information given to you in confidence, but it is also right to report violations of laws, rules, and ethical standards. Golden Rule of Ethics: The following are the forms of the golden rule in ethics. Each of these forms the basis of all human values. These are the core values to change one first. 1. Everything you want others to do to you, you shall do to others. 2. Do not do to others that which you do not wish them to do to you. 3. Do not do anything to others that if done to you, would cause harm to you. RELATION IN FINANCIAL ACCOUNTING STANDARDS AND CORPROATE GOVERNANCE: Ribbon Blue Committee Reports on improving the effectiveness of audit committee says If a corporation is to be viable attraction for capital, its board must ensure disclosure and transparency concerning Companys financial performance as well as its governance practices. Need for Ethics in Accounting: No body except the promoters and/ or say Executives Officers are involved directly in the management of the company but in banking company the employees at large are executors where ethics plays a vital role. The information must reach to all concerns present and prospective stake holders so that they may be aware of the present financial position of the company solely for the purpose of continuing or take out their investment to some other better opportunity. (Disclosure of vigilance functioning) NEED FOR STANDARDIZATION OF ACCOUNTING STANDARDS : Few countries framed their policies keeping the creditors in mind, need of authorities or central planners. In US, Accounting Standards have been developed keeping in view the needs of participants in the capital market. Many complexities came up during last three decades resulting of which a need was felt for international standardization of accounting standards so that: All information should be based on ethical approach and transparency which may place the view of financial statements in true and fair manner for all concerns. As such need for inter-country uniformity of accounting standards was felt. Who are concerned? : Share holders including promoters Suppliers Investors and creditors Debenture holders financial institutions Government Consumers Society at large Keeping in view the above points regulatory authorities of Government have framed certain rules and regulations which are to be followed in letter and sprit. Main source of financial information: Published accounts of the company which should therefore be not only transparent but reflect true and fair view of the financial health of the company also. This information is submitted in various forms like: Balance sheet & Profit & Loss Accounts as on 31st of March of every year (u/s 210 (1) of Companies Act 1956 and if deviations, then the reasons thereof should be furnished u/s 211(3b) Cash flow statement which is mandatory for the listed companies in India under clause no 32 of Listing agreement (SEBI-cir/08/2000 of 04.02.08) should be prepared in accordance with AS 3 of ICAI Banking/Financial Institutions : Financial results (Qly-Hy-Yly) in accordance with the guidelines of Companies Act 1956, Banking regulation Act 1949, Disclosures as per SEBI guidelines and Institute of Page | 6

"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

Chartered Accountants of India (ICAI) and following up of AS1-AS28 Concentration of deposits : 20 major accounts largest deposits & %age to total deposit Concentration of advances : 20 major accounts of largest borrowers & %age to total advances Total NPA that also sector wise: Agriculture & allied activities Industry (Micro & small, Medium and Large) Services Personal Loans . Latest Regulatory Directions: From the year ending March 2010: I. Concentration of Deposits, Advances, Exposures and NPAs II. Sector-wise NPAs III. Movement of NPAs IV. Overseas assets, NPAs and revenue V. Off-balance sheet SPVs sponsored by banks In The formats prescribed by Regulator i.e. RBI Whistleblower Policy of the company i.e. BANK. Role of Disclosure in Corporate Governance: If investors are not confident with the level of disclosure, capital will flow elsewhere. Arthur Levitt, Former Chairman of US SEC. Corporate governance: Corporate governance is nothing but the system or a way of by which a Bank is generated, regulated and controlled. Through ensuring good corporate governance a bank can operate standard ethics in every operation. Good corporate governance means: Conduct all business in an integrated fairness. Being transparent in all transaction. Making all discloser and decision complies with law of the land. Accountability and Responsibility. Commitment with an ethical manner.

***Based on some given Speeches-

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"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

1. Banking is built on trust. Ordinary people entrust their savings to a bank based on faith that this money will be duly safeguard and returned to them whenever they need to use it. The banks, in terns, on lend their depositors money to borrowers, again based on a trust that they will return the money as well as some interest for the beneficial use of this money. Whatever may be the legal contracts which underwrite the relationship between the depositor, banker and borrower, in the financial analysis; these remain fiduciary relationship built upon the good faith of the contracting parties. If such a basic trust did not sustain the relationship, there remains no body of law strong enough or collateral attractive enough to underwrite such a sensitive r elationship where one persons savings underwrite the commercial activities of another through the mediation of the banking system. Trust must always be underwrite by ethics which obligate a person to honor their word. If there was no substructure of ethics to a relationship of trust. The task of a banking system should extend beyond the mere enforcement of a fiduciary relationship between depositors and borrowers to ensure that it is discharge efficiently and honestly and should attempt to ensure that the resources entrusted to their care are used in a just manner. Economic justice implies that economic compensation should be calibrated to efficiency and skill. Social justice implies that all citizens should be provided with equal opportunities through command over productive assets and skills to participate on competitive terms in the market. Political justice means that all citizens should be able to participate freely in exercising their political choice and should be able to compete on equal terms for public office. Banking services should thus be guided by economic efficiency, social and political justice. In practice, deposits within banking system originate from a broad cross section of society but tend to serve the demand for credit of a much narrower cross section of citizens. This violates the norms of both social and economic justice. It is evident that ethics in banking is of supreme importance for the economy and the society. In my judgment, ethics in banking must be firmly anchored on four pillars. First, banks must comply with all laws, rules and regulations that are usually framed in any country to ensure soundness of operations and to enhance confidence of the society. These laws, rules and regulations may relate to, among others, capital adequacy, maximum shareholding by members of a family, qualifications and tenure of members of the Board of Directors and Managing Directors, representation of depositors on the Boards, credit rating requirements, maximum limits on single party exposure, liquidity and credit/deposit ratios etc. Banks are additionally subject to provisions of company law, tax laws and securities laws. Any attempt to circumvent any legal provisions must be considered unethical. The universe of law and the universe of ethics are not necessarily coterminous, but violation of law is rarely, if ever, ethical. Second, banks must ensure fair and equitable treatment of all stakeholders. The interests of various stakeholders such as shareholders, depositors, borrowers and employees do not necessarily coincide. For example, banks may be inclined towards offering low returns to depositors and charging high interest rates from the borrowers in order to maximize profits and dividend for the shareholders. Such conflict of interest must be ethically balanced keeping in view the greatest good of the greatest number. Third, the banks must ensure full, truthful and transparent disclosure of their financial health. As noted before, many of the assets which turned out to be toxic were treated as off-balance sheet items. The concerned stakeholders were thus deprived of the right to get a transparent picture of the true financial health and the risks that were being assumed.

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"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

Fourth, banks must behave as socially responsible corporate citizens. Milton Friedman, a nobellaureate economist and an ardent proponent of free market economy wrote in 1970 that there is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profit so long as it stays within the rules of the game. One may interpret this statement to mean that business is simply about maximizing profit without violating laws and regulations. This is obviously an untenable position. It may be observed here that banks did not apparently violate any prevailing laws and regulations, yet their activities inflicted severe negative externalities upon the society, as noted earlier. In this context, it may be mentioned that many of our corporate entities, including banks, gloat with satisfaction about fulfillment of social responsibility by offering a few scholarships, making donation to some clinics or offering some support for some charitable activities. While such initiatives are welcome, these touch only the fringe. Social responsibility must be viewed from a wider perspective, taking into account the impact of banks' activities on growth, employment and emphatically in our case, poverty alleviation as well. Banks' Benefits from Ethical Conduct: A symbiotic relationship is likely to emerge between ethics and competitive advantage. Through pursuit of ethical practices, banks can acquire brand reputation. This should help them expand customer base and increase income. The brand name reputation is also likely to attract ethically conscious clients. As a result, the banks will be greatly relieved of the problem of non- performing loans. The banks well-known for ethical conduct should be able to attract and retain bright and honest employees. Thus, they will be relatively free from the problems created by quick employee turnover or inability to hire smart and honest employees. Human resource management would be easier, internal governance would improve and operational efficiency would increase. Brand reputation would make it easier to raise additional capital in a cost-effective manner, as and when needed. Relevance of External Conditions: While the responsibility for implementation of ethical principles lies primarily with the banks themselves, certain elements in the external environment confronting them would be helpful in generating necessary inspiration or compulsion. An independent, honest and competent judiciary is of seminal importance in this regard. If the banks are convinced that they would get a fair treatment in legal disputes, they are unlikely to indulge in unethical practices. Moreover, the judiciary can play an important deterrent role against violation of ethical principles. Active civil society groups focusing on the operations of banks can also be helpful. Similar comments would apply to the media. Most importantly, the regulatory authority must play a vigorous role to ensure real time monitoring and surveillance over the banking operations. The authority should have the competence to promptly identify violations of ethical norms and initiate remedial measures, including legal actions, without being influenced by political pressure or any other extraneous consideration.

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"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

2.
Ethics means the discipline dealing with what are good and bad with moral duty and obligations. According to websters ninth new collegiate dictionary. Besides, ethics is a collection of moral principles and rules of conduct accepted by part or all of the members of a society. In a word a set of moral conduct. Social Justice in Banking System This socially responsible behavior goes beyond utility maximization, resonating with the urge for justice and fairness in social life and promoting inclusive growth to open up advancement opportunities for the disadvantaged population segments. Banks collect their deposits from urban areas and as well as rural areas. But how much deposit collect from rural area they dont give that much loan to the rural area. They give the loan to the urban area more than the rural area. So the rural areas never get the perfect change to change their origin situation. Besides the private bank always want to open their branches in the urban areas. It is evident that our formal banking system has been unjust in the direction of its loans by underselling small borrowers, the rural areas and key sectors such as agriculture and small industry. It has in contrast served the elite of our society through a highly concentrated pattern of lending of where some 5000 borrowers, largely located in the urban centers of Dhaka and Chittagong have monopolized bank advances. The ongoing financial inclusion initiative in our banking sector is an action agenda driven by this ethical imperative, underpinned by the Bangladesh Bank guidance for mainstreaming corporate social responsibility (CSR) in corporate goals, objectives and attitude of banks. We are heartened by the warmth of enthusiasm thus far seen in all banks including the private sector-owned ones in these initiatives, but we still have a long distance to cover in completely ridding our society of poverty and deprivation arising from manifest injustice and unfairness. Financial institutions have become very complex and sophisticated in the way they operate. The products and services they offer tend to be more and more complicated. The ways they invest resources, the way they design, promote, and implement credit facilities, all become less evident year after year, and the speed at which they evolve is ever accelerating. This complexity and sophistication of the industry is in part a response to the shifting and ever-growing needs of the banks clients. Companies in need of financing, and of financial services, tend to have more and more complex businesses with complex needs and requirements of capital. Globalization also plays an important role. Banks customers often do not have a localized headquarters but they operate virtually everywhere in the world. Today it could be argued, it is more difficult for banks to know in detail where these customers operate and what exactly they do and how they run their businesses. Moreover clients change, merge, get acquired, and move in and out of businesses and markets much more rapidly than in the past. It is not only banks that change so quickly, but their clients, and their clients needs also move and evolves at a higher speed. So these are all happening in unethical banking system. When banks lend money to others, the bank may not be doing wrong by itself. It is these other entities which might be engaged in wrong-doing. However, this does not excuse banks from their moral responsibility. Money enables and promotes actions and in this sense, banks lending money to evil-doers is facilitating their activities. It is not valid to argue that a bank is only in the business of financing and lending and that therefore they carry no ethical responsibility in the wrong-doing. Banks effectively enact, enable, and promote the realization of actions with their lending of financial resources. Public financial institutions should observe complete transparency in their transactions. Where necessary, banking secrecy laws should be amended to enable the banks to make full public disclosure of their transactions. This would involve publishing the identity and loan particulars of all loan recipients above TK. 1 crore as well as records of the servicing of such loans, their defaults if any and all rescheduling of debts where this takes place. We would look forward to the BIBM and individual banks holding periodical discussion sessions for brainstorming on various issues in banking ethics. Training courses for new employees and existing staff of banks should have sessions with adequate content on ethical issues. The BB will be happy to be companion

and partner of banking community in the way forward to heights of ethical excellence and contributions of high profile scholars and thought leaders. This will hugely benefit us in this journey now and in future.

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"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

Concluding part:Overall Scenario on Banking Ethics:


In light of the scenario described above, it is evident that ethics in banking is of supreme importance for the economy and the society. In my judgment, ethics in banking must be firmly anchored on four pillars. First, banks must comply with all laws, rules and regulations that are usually framed in any country to ensure soundness of operations and to enhance confidence of the society. These laws, rules and regulations may relate to, among others, capital adequacy, maximum shareholding by members of a family, qualifications and tenure of members of the Board of Directors and Managing Directors, representation of depositors on the Boards, credit rating requirements, maximum limits on single party exposure, liquidity and credit/deposit ratios etc. Banks are additionally subject to provisions of company law, tax laws and securities laws. Any attempt to circumvent any legal provisions must be considered unethical. The universe of law and the universe of ethics are not necessarily coterminous, but violation of law is rarely, if ever, ethical. Second, banks must ensure fair and equitable treatment of all stakeholders. The interests of various stakeholders such as shareholders, depositors, borrowers and employees do not necessarily coincide. For example, banks may be inclined towards offering low returns to depositors and charging high interest rates from the borrowers in order to maximize profits and dividend for the shareholders. Such conflict of interest must be ethically balanced keeping in view the greatest good of the greatest number. Third, the banks must ensure full, truthful and transparent disclosure of their financial health. As noted before, many of the assets which turned out to be toxic were treated as off-balance sheet items. The concerned stakeholders were thus deprived of the right to get a transparent picture of the true financial health and the risks that were being assumed. Fourth, banks must behave as socially responsible corporate citizens. Milton Friedman, a nobel-laureate economist and an ardent proponent of free market economy wrote in 1970 that there is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profit so long as it stays within the rules of the game. One may interpret this statement to mean that business is simply about maximizing profit without violating laws and regulations. This is obviously an untenable position. It may be observed here that banks did not apparently violate any prevailing laws and regulations, yet their activities inflicted severe negative externalities upon the society, as noted earlier. In this context, it may be mentioned that many of our corporate entities, including banks, gloat with satisfaction about fulfillment of social responsibility by offering a few scholarships, making donation to some clinics or offering some support for some charitable activities. While such initiatives are welcome, these touch only the fringe. Social responsibility must be viewed from a wider perspective, taking into account the impact of banks' activities on growth, employment and emphatically in our case, poverty alleviation as well. With the above hindsight, I would suggest a few do's and don'ts for banks to meet ethical standards. This list is by no means exhaustive. Do's: * Ensure a fair return to the depositors and safety of deposits.

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"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

* Minimize spread between cost of funds and lending rates. * Engage in transparent accounting practices. * Comply with all laws, rules and regulations promulgated by relevant regulatory authorities. * Develop effective risk management systems. * Treat clients with courtesy. * Offer services promptly. * Make proper use of information and communications technology to enhance efficiency in providing services. * Protect minority shareholders' interest. * Set up management systems which clearly specify the functions of the Board, key management personnel such as the Managing Director, Chief Financial Officer, Company Secretary, Heads of Divisions and Departments etc. * Treat employees fairly and compassionately. * Arrange for requisite employee training. * Ensure non-discrimination in personnel practices and support employees' and their family members' access to basic health, education and housing needs. * Finance activities which contribute to environmental protection, employment creation, poverty alleviation and women's empowerment. * Devise innovative products without assumption of undue risk. * Arrange flexible mortgage payments for poor people's housing. * Try to expand operations to unbanked or under banked sectors, regions and population groups. * Emphasize recovery, but with a human face. * Develop an internal code of ethics and set up an institutional arrangement to monitor compliance and suggest remedial actions, where needed. Don'ts: * Don't prove Mark Twain's statement "banks will lend you money if you can prove you don't need it." * Don't reschedule loans at the last moment to enable powerful, but delinquent borrowers to participate in elections. Page | 12

"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

* Don't permit sexual discrimination with respect to depositors, borrowers and employees. * Don't be lavish in branch decorations and perks for Board Members and senior management personnel. * Don't engage in unhealthy competition to steal qualified employees or wean away depositors from other banks. * Don't engage in collusive interest rate fixing. * Don't finance activities which aggravate pollution, employ child labour and injure human health. * Don't finance unsustainable bubble in real estate or stock prices. * Don't bow down to illegitimate pressures exerted by political personalities, bureaucrats or musclemen. * Don't appoint pliable auditors to prepare opaque, non-transparent financial reports. * Don't be an accomplice to money-laundering activities or illicit trade. As mentioned already, this is by no means exhaustive. Yet it possibly sounds like a tall order. One can, therefore, legitimately ask why banks should behave in an ethical manner. There are several justifications. Banks' Benefits from Ethical Conduct: A symbiotic relationship is likely to emerge between ethics and competitive advantage. Through pursuit of ethical practices, banks can acquire brand reputation. This should help them expand customer base and increase income. The brand name reputation is also likely to attract ethically conscious clients. As a result, the banks will be greatly relieved of the problem of non- performing loans. The banks well-known for ethical conduct should be able to attract and retain bright and honest employees. Thus, they will be relatively free from the problems created by quick employee turnover or inability to hire smart and honest employees. Human resource management would be easier, internal governance would improve and operational efficiency would increase. Brand reputation would make it easier to raise additional capital in a cost-effective manner, as and when needed.

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"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts."

References:

http://www.assignmentpoint.com/arts/sociology/ethical-and-social-responsibility-banking-in-dutchbangla-bank-limited.html#sthash.mejQrueL.dpuf - http://wiki.answers.com - http://archive.thedailystar.net/newDesign/news-details - http://www.google.com - http://www.ansque.com -Providing class lecture & Slides -

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