Finance Minister Arun Jaitley unleashed big bang reforms for the public sector banking system in a bid to revitalize capital-starved and corruption-prone state-run banks.
High levels of non-performing assets in state-run banks have made it hard for the government to revive investment or accelerate growth, analysts say. In a big move to revamp state-run banks, the government is working on a 7-point agenda, said Financial Services Secretary Hasmukh Adhia.
The Seven Elements Include :-
- Appointments,
- Board of Bureau,
- Capitalisation,
- De-Stressing,
- Empowerment,
- Framework of Accountability
- Governance Reforms.
2. Bank Board Bureau : The Bank Board Bureau will start functioning from the next financial year and is the first step toward a full-fledged bank holding company, an entity that will house the government's stake in state run banks struggling with mounting non-performing loans that have touched 6 per cent of gross advances. Envisaged as a panel of eminent professionals, the bureau will advise banks and act as a link with the government.
3. Capitalization : The government will inject a total of Rs 25,000 crore of capital into debt-laden state banks in this fiscal; Rs 20,000 crore would be injected in a month. Over the next four years, the government plans to inject Rs 70,000 crore.
4. De-stressing : 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 also announced a new framework of key performance indicators for state-run lenders to boost efficiency in functioning while assuring them of independence in decision making on purely commercial considerations. "A clear distinction has been made between interference and intervention," said Hasmukh Adhia, secretary, department of financial services. A robust grievance redressal mechanism is being put in place for customers of banks as well as staff.7. Governance Reforms : Jaitley said the government will reveal 'Indradhanush' plan to revamp PSU banks