India has unveiled a seven-pronged revamp plan to shake up its struggling state-run banks, including a Rs.20,000 crore capital infusion lifeline besides hiring private sector executives for the first time to run public sector lenders. A new umbrella structure under the Bank Board Bureau will guide policy , functioning and appointments.
The government, which said these marked the most significant measures since bank nationalisation about 50 years back, assured the lenders that they would be allowed to function without political interference.
The strategy, dubbed Indradhanush (rainbow), focuses on systemic changes in state-run lenders, including a fresh look at hiring, a comprehensive plan to de-stress bloated lenders, capital infusion, accountability incentives with higher rewards, including stock options and cleaning up governance.
“This revamp will be the most comprehensive plan since nationalisation of banks in 1969. This would give banks the strategic space for adequate competitive positioning. The plan envisaged for revamp of PSBs is a bottom-up process, ensuring world-class quality and autonomy ,“ MoS for Finance Jayant Sinha said.The government has already announced a comprehensive Rs.70,000-crore capitalisation plan for four years till 2019, which includes an infusion of  Rs.25,000 crore in the current financial year.
Bankers and experts welcomed the announcement.

Cleaning up Appointments
Executives from the private sector have been hired to run state-run banks with the government appointing Rakesh Sharma, head of private sector lender Lakshmi Vilas Bank, as chief executive of Canara Bank. PS Jayakumar, chief executive of real estate developer VBHC Value Homes, has been named head of Bank of Baroda.

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% of gross advances. Envisaged as a panel of eminent professionals, the bureau will advise banks and act as a link with the government.

De-stressing Banks
After a thorough assessment of the contributing factors to NPAs, the government has drawn up a plan that hinges on getting projects moving through expeditious approval and hand holding, taking over management control of equity infusion by promoters, rejigging the duty structure, pushing for flexibility in restructuring of existing loans. Apart from strengthening debt recovery tribunals, several steps have been undertaken to strengthen risk controls and NPA disclosures.

The government also announced a new framework of key performance indicators for PSU lenders to boost efficiency in functioning while assuring them of independence in decision making on purely commercial considerations.

No comments: