Government unveils revival plans for public-sector banks

New Delhi,Praveena Sharma: After announcing its capitalisation plans for public sector banks (PSBs) recently, the government on Friday came out with a comprehensive roadmap for their revival that involves making their operations more professional to eventually pin down swelling non-performing assets (NPAs).


Close to 70% of the assets in the banking system are currently held by PSBs and they are major lenders to the core sectors.

While admitting that there was “no cause for panic”, finance minister Arun Jaitley said the government was addressing various issues relating to distressed assets of state-owned banks by taking corrective steps at all levels.

The plan unveiled by the government consists of appointment of professional talent at the top and middle levels, setting up Bank Board Bureau (BBB) by April 2016, capital infusion of Rs 20,088 crore to 13 banks in a month, de-stressing bank assets by tackling problems in various priority sectors, empowering them by minimising government interference and drawing up a framework of accountability through regular evaluation of key performance indicators.

Hasmukh Adhia, secretary – department of financial services, said of the Rs 25,000 crore that the government will release in the current fiscal in three tranches, a sum of Rs 20,088 crore has been marked for allocation to 13 PSB in a month. The remaining, Rs 5,000 crore, he said, would be released in the fourth quarter of the fiscal based on first three quarter performance of the eligible PSBs.

The state-owned banks have also been given the option to raise funds from the market. Jaitley said the government would prefer to tab the market or go in for stake divestment post capitalisation.

“For any divestment, keeping majority stake with the government, post-capitalisation is a preferred option,” he said.

On the formation of a bank holding company, Jayant Sinha, minister of state for finance, said the government was looking into what legislative processes were needed to be followed for it.

“For the (bank) holding company, from the legislative purpose, we will have to consider how this will work with respect to Bank Nationalisation Act. So, all that will be worked out once the BBB is in place. We have to look at what the legislative requirement is,” he said.

Jaitley said a lot of the function of the BBB would be “subsumed” into the bank holding company once it is put in place. The BBB is expected to replace the current Appointments Board for appointment of whole-time directors and non-executive chairman and would constantly interact with the board of directors of the PSBs to work on growth strategies.

The PSB recovery plan also includes consolidation of banks, which would be left to the banks management.

“Consolidation process will be decided by banks themselves. They have to decide what their strategies would be and then carry it through,” said Sinha.

Another major announcement made by the government was the appointment of five managing directors and CEOs of Bank of Baroda, Bank of India, Canara Bank, IDBI Bank and Punjab National Bank and five non-executive chairman of Bank of Baroda, Bank of India, Canara Bank, Vijaya Bank and Indian Bank.

Posted by on August 15, 2015. Filed under Economy, Editorial. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.