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This is what government's seven-point PSU banks reform plan entails

The government has already announced a plan to infuse Rs 70,000 crore in PSU banks, of which Rs 25,000 crore will go out in this fiscal.

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Finance Minister Arun Jaitley
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The government today announced a reform plan for ailing public sector banks (PSBs). Rising Non-Performing Assets (NPAs) have pushed most PSBs near the red line in the second quarter results. 

Financial Services Secretary Hasmukh Adhia, presented a "Comprehensive Transformation Framework" for state banks at a press conference.

The gross NPAs as a percentage of total advances rose to 2.04%, from 1.56% in the year-ago period. The net NPAs too increased to 0.93%, from 0.81%.

The seven-point reform plan to revamp PSU banks comes after the government's earlier plan to infuse Rs 70,000 crore in PSU banks, of which Rs 25,000 crore will go out in this fiscal.

Here's what the seven-point reform plan includes:

1. Appointments 

The government will be hiring bankers from the private sectors to head PSB banks. They have already hired managing directors and chairpersons for five PSUs, namely, Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank and IDBI Bank, Financial Services Secretary Hasmukh Adhia said.

PS Jayakumar who heads VBHC Value Homes will be the MD and CEO of Bank of Baroda, Former Microsoft India chairman and Infosys board member Ravi Venkatesan will be the new chairman of Bank of Baroda.  

2. Bank Board Bureau

The government will set up a Bank Board Bureau as a watchdog for PSUs' performance. The Bureau will monitor the key performance indicators of state banks.

This is also the "first step towards a banking investment company which will hold all the assets of the banks, the share-holding assets of the government with the banks, we had proposed a bank board bureau," Finance Minister Arun Jaitely, who was also present at the press conference said.

3. Capitalisation

The government has already announced its plans to capitalize state banks by Rs 70,000 crore over the next four years. The first tranche of Rs 25,000 crore will be doled out this year, of which Rs 10,000 will go to weak banks.

4. Distressing

Bad loans weighed on most PSUs in Q2 FY16.Rising bad loans have taken a toll on profitability of lenders, with several banks including Bank of Baroda, Dena Bank, Oriental Bank of Commerce and Kotak Mahindra Bank reporting a drop in net profit for the quarter ended June 2015.

The government will concentrate on distressing the banks’ bad loans, however, the situation of stressed assets is not so bad, Hasmukh Adhia, Financial Services Secretary has said.

5. Empowerment

The government will strive to make it easier for PSBs to hire. PSBs have all the freedom, but they want to recruit at the middle level; they are already free to hire on contractual basis: Banking Secretary has said. The government is also looking at introducing Employee Stock Ownership Plan (ESOPs) for the PSU bank managements. 

Jaitley said, banks are extremely keen to opt for campus hiring, but there are legal difficulties in that, and that the government is examining the legal position. 

6. Framework of accountability 

The government will be coming out with a framework to make PSBs accountable. 

“Comprehensive transformation framework is to ensure banks can prepare for the future, have world class governance & autonomy,” Jayant Sinha, Minister of State for Finance has said. 

7. Governance reforms

Jaitley said the government will reveal 'Indradhanush' plan to revamp PSU banks

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