New Delhi: To revive the fortunes of public sector banks, government on Friday unveiled a seven-point plan encompassing Rs 20,000 crore immediate fund infusion, creation of a single holding company and minimising political interference.
Announcing the revamp plan named 'Indradhanush' that also includes setting up of a Bank Board Bureau (BBB) for broad-level appointments and a performance-based monitoring mechanism, Finance Minister Arun Jaitley also allayed fears of any panic over mounting bad debts at the state-run banks.
Also read: India needs to cut political interference in state banks: FM Jaitley
Under the plan, asset reconstruction companies will also be strengthened to deal with bad loan situation.
Moreover, the government has also resolved to set up a Bank Investment Committee, which will act as a holding company for shares on behalf of the government.
Observing that the problem of the bad loans, which has remained unattended by the previous government, can be attributed to the slowdown in some sectors, Jaitley said that "even though challenging situation did exist, there is no cause for panic... Cause for panic or alarm does not exist."
"Since the present government took over, our policy was that commercial decisions must be taken on commercial considerations and the level of political interference in the functioning of banks have to be minimised."
The minister further said that the government has been taking steps to deal with the problem of bad loans and improve the health of the state-owned banks.
"The government has been from time to time reviewing health of these banking institutions. The nature of the problem is such that some initiatives which we have taken, it has partly been fixed and it is capable of being fixed," he added.
In order professionalise PSBs, the government also announced appointment of two private sector bankers to head Bank of Baroda and Canara Bank while also making appointments to three other large state-run banks from within the government sector.
The government has decided to inject Rs 70,000 crore in PSBs in four-year period starting this fiscal with Rs 25,000 crore, of which Rs 20,000 crore would be given within a month. The remaining Rs 5,000 crore would come in the last quarter of this fiscal.
Giving details of the seven-point agenda for revamp of PSBs, Financial Services Secretary Hashmukh Adhia said: "As of now, the PSBs are adequately capitalised and meeting all the Basel III and RBI norms. However, the government wants to adequately capitalise all the banks to keep a safe buffer over and above the minimum norms of Basel III."
If we exclude the internal profit generation which is going to be available to PSBs (based on the estimate of average profit of the last three years), the capital requirement of extra capital for the next four years up to 2018-19 is likely to be about Rs 1.8 lakh crore, he said.
On destressing banks, Adhia said, various steps have been taken to bring down non-performing assets (NPAs) in infrastructure sector which is primarily responsible for rising bad loans.
Many steps have been taken to reduce NPA in power and state discoms, he said we have started the process of dialogue with the discoms.
Speaking on the issue Jaitley said "it was sectors such as steel, power, highways, discoms, to a lesser extent sugar, which were predominately responsible for the stress and therefore to resolve the whole issue and find a solution to this you need to deal with banks as an institution, you also need to deal each of these sectors."
There are positive movements as far as the highway sector is concerned and the large amount of public investment going into the sector has got the sector moving, Jaitley said.
"We have in the last few months taken some steps with regard to the steel sector. But the problem with regard to steel sector are really on account of the external factors. And therefore steps being taken also relate to that," he said.
The government is continuously monitoring the situation as far as private sector power companies are concerned as also the discoms and some states have to have some urgent reform measures as far as discoms are concerned, he added.
Asked about merger of Bharatiya Mahila Bank with SBI, Jaitley said that no decision has been taken.
However, Bharatiya Mahila Bank Chairperson and Managing Director Usha Anathasubramanian was appointed as MD and CEO of PNB and she took charge of the bank soon after the announcement.
On the proposed holding company, Jaitley said "as first step towards banking investment company, which will hold all share holding assets of the bank, we have proposed Bank Board Bureau (BBB)."
The BBB is the interim arrangement till the holding company comes into existence because some of these functions will be get subsumed, he said.
The bureau would get operational from April 1, 2016 and the members would be appointed in the next six months. The BBB would be headed by a professional.
On disinvestment of banks, he said, "that's not the issue under consideration at this moment. Any divestment which is to take place while retaining the 52 per cent. A post capitalisation divestment is always a preferred option."
On the issue of empowerment, Adhia said the government has issued a circular that there will be no interference from the government and banks are encouraged to take their decision independently keeping the commercial interest of the organisation in mind.
"A cleaner distinction between interference and intervention has been made. With autonomy comes accountability, accordingly banks have been asked to build robust Grievances Redressal Mechanism for customers as well as staff so that concerns of the affected are addressed effectively in time bound manner," he said.
Talking about framework of accountability, the Secretary said that a new framework of Key Performance Indicators (KPIs) to be measured for performance of PSBs is being put in place.
"It is divided into four sections totalling up to 100 marks. The quantum of performance bonus is also proposed to be revised shortly to make it more attractive. We are also considering ESOPs for top management of PSBs," he said.
On Governance Reforms, Adhia said the government has been constantly engaging with the banks through review meeting and sessions for strategic reviews etc. Various steps have been taken to empower Bank's Boards.
Commenting on the seven-point agenda SBI Chairperson Arundhati Bhattacharya said these will reinvigorate the public sector banks and strategically enable them to take informed decisions in their quest for greater efficiencies.
These steps are likely to alter the scope of the banking landscape in the country and enable it to realise potential hitherto unexplored, she added.
