The government today outlined a seven-step programme for the country’s struggling public sector banks, which aims to infuse fresh capital and make a number of changes that would give them greater freedom to operate as commercial entities.
The initiative, codenamed Indradhanush, covered a number of areas such as appointments, setting up of a Bank Board Bureau, capitalization, de-stressing PSBs, empowerment, creating a fresh framework of accountability and carrying out governance reforms.
Govt mantra: ‘ABCDEFG’
Some measures that were announced today were a reiteration or detailing of steps that were announced previously: such as the government’s decision to up its recapitalization figure from Rs 8,000 crore to Rs 25,000 crore this fiscal (plus an additional Rs 45,000 crore over the next three fiscals) or setting up of a Bank Board Bureau.
But there were other crucial steps that bankers said could potentially revolutionize the way state lenders work.
For instance, the government announced the names of chiefs for public sector banks that have remained headless for months but threw in a delightful first: two of the 10 names were from the private sector. (It also said it was considering offering ESOPs top management.)
The government also provided details for a seven-member Bank Board Bureau, which was announced in the Budget, saying it would be launched on April 1, 2016, and would take over the appointments role from the government and evaluate strategies for PSBs.
The BBB is an interim step before the government sets up a bank holding company, which would hold the government’s stake in PSBs and which would quasi-independently manage them, Jaitley confirmed.
In order to de-stress banks, the government and the Reserve Bank of India have recently announced a number of steps in order to spur risk controls and would look to further strengthen institutions such as debt recovery tribunals and asset reconstruction companies.
The government has also set up a cell to manage projects and was in consultation with various stakeholders in order to facilitate approvals, Financial Services Secretary Hasmukh Adhia said.
He also reiterated Prime Minister Narendra Modi’s pledge of zero political intervention into PSBs’ commercial operations.
Finally, he said the government was revising its accountability and performance evaluation methods for PSBs, moving away from previous ones focused on topline growth or balance sheet expansion to one based on return on asset or return on equity.
Is it enough?
While Minister of Finance for state Jayant Sinha termed today’s framework as the boldest step dating back to history of banks’ 70s nationalization, others were not as enthused.
“Some of today’s announcements were incremental but others were brave,” industry consultant Ashvin Parekh told CNBC-TV18. “The move to recalibrate key performance indicators for banks as well as the announcement on the Bank Bureau are very positive.”
He, however, said the government’s claim that the NPA situation was nothing to panic over does not reflect the reality — adding that estimating a part of banks’ restructured assets could actually be NPAs, he says the bad assets figure could go up from the current 6 percent to 10 percent.
Former Oriental Bank of Commerce CMD SL Bansal disagreed with the government’s decision to leave the question of mergers and acquisitions to bank boards.
“Banks don’t likely to lose their identity. While the government offered carrots in the form of revising key performance indicator mechanism, it should also offer stick to non performers [in the form of forced consolidation],” he said.
But other top bankers suggested today’s steps were about as much as they had sought at the first-of-its-kind Gyan Sangam earlier this year where government and bank officials brainstormed to bring the public sector banks out of their current struggle.
They added that the steps were also enough to help banks find their way out of the NPA crisis.
“If we fail to perform after this, we will only have ourselves to blame,” recently-appointed SBI MD Rajnish Kumar said.