The finance ministry has called a meeting of the chiefs of public-sector banks (PSB) and financial institutions to review their performance in FY14 on May 13 – just three days before the counting of votes for the Lok Sabha elections.
This will be the last performance review of PSBs under the Congress-led the United Progressive Alliance government. Many large public-sector banks including State bank of India, Punjab National Bank and Bank of India, are yet to declare results. Notably, Bank of Baroda is slated to announce results on May 13.
A few state-owned banks such as IDBI Bank, Union Bank, Indian Overseas Bank have announced results for FY14.
Two PSB chiefs defended finance minister P Chidambaram’s decision to call the meeting saying even though the election process is underway, the government is well within its rights to conduct a performance review.
Banks had given certain indicative targets and it is natural to see where they stand at the end of March 2014. The chief executive of a south India-based public-sector bank said the finance minister is reviewing the performance of banks on many areas including financial inclusion and non-performing assets (NPAs).
At the time of the last review held in March 2014 for the third quarter ended December 2013, the government had flagged concern over the decline in profitability and return on assets (ROA).
Public-sector banks have been hit hard by the rising NPAs, a slump in credit demand due to slowdown and higher burden for provisions for NPAs and restructured loans.
Banks were earlier made to work overtime to create infrastructure for direct benefit transfer (DBT) scheme to deposit subsidies and other cash benefits in the bank accounts of beneficiaries. This was meant to bring people into the fold of financial services.
The decline in profitability and ROA was noted with concern. The strain on capital adequacy has become a matter of concern as PSBs are faced with the burden of NPA provisions and provisions for employee benefits.
In March 2014, Chidambaram had told bank chiefs that the government’s capacity to provide capital for PSBs was not unlimited and to remain adequately capitalised, they have to increase retained earnings and expedite recovery.