"We have to get away from the present situation where lenders' interest precede shareholders'. Company boards should not be held captive to narrow interests of lending institutions," Ahluwalia said at a seminar on "International Corporate Governance" organised by the Associated Chambers of Commerce and Industry of India (Assocham) and Modicorp here.

Financial institutions should work in company's interest more than acting as public representatives on the board, he said adding FIs should have intensive interaction with company management and base their lending purely on the merits of company's performance and bankable returns.

"A stringent bankruptcy law is all that is required to protect their interest," Ahluwalia said adding investor interest should be their prime concern rather than debt coverage.

However, there has been a big competitive change in the domestic capital markets prompting an equivalent change of mindset of financial institutions to make them behave in a manner as such institutions do around the globe, he added.

Ahluwalia further stated that there was need to make Indian accounting standards compatible with internationally prevalent norms for evolving a globally acceptable corporate governance code in the country.

Indian companies need to adopt accounting standards that are more transparent in dealing with liabilities, reserves, risks and sources of income.

"Indian accounting standards are not compatible with international accounting standards and there exists a difference in treatment of liabilities, risk, consolidation of accounts and sources of income," he said adding adopting internationally accepted accounting practice should figure high in the corporate governance code.

Equally important was adopting transparent auditing practice which projected a clear picture of company to its shareholders, lenders and stakeholders, he said.

The new international financial architecture emerging after the East Asian crisis involved adopting quality accounting standards and transparent and independent accounting, he said.

"If Indian companies raising funds abroad can adopt internationally recognised accounting practice, why can't they do the same for the domestic investors," Ahluwalia asked.

Stating that corporate governance was not a matter of legislation alone, Ahluwalia said companies should adopt a self-evaluating approach to adopting practices which struck a right balance between interests of promoters, shareholders, lenders and government.

Government was amending the companies law to make corporate governance mechanism mandatory but the real monitor of implementation of such a code would be markets which would accept or reject companies based on their performance, he said.

"Companies will have to satisfy the investors and not the government. They are the persons who would decide on companies claims," Ahluwalia said adding governance which broadened and improved participate ownership would be trusted by the markets.