The Centre has asked 10 public sector banks to consider selling stakes in joint ventures and subsidiaries and also to close down loss-making domestic and international branches to improve their financial health.
In a communication to the 10 banks including IDBI Bank, Indian Overseas Bank, Central Bank of India and United Bank, the Finance Ministry has suggested initiatives that, when implemented, could help these banks put their house in order.
While several public sector banks have joint ventures in areas like insurance and asset management, bankers said stake sales wouldn’t necessarily fetch reasonable valuations as some of these ventures were not faring well.
Earlier this month, the Finance Ministry, while allocating capital to these 10 banks, had asked the lenders to submit a turnaround plan and said, “The release of capital is based on the premise that banks would significantly improve their performance with prudent financial management and going forward that they will be able to meet capital needs through their own earnings.”
Active non-performing asset (NPA) management and strengthening of credit, arranging capital from the market, disposal of non-core assets, and divestment of subsidiary stake were among some of the initiatives that were highlighted.
As of December 2016, commercial banks had 1,36,412 domestic branches of which more than 85,000 branches were located in semi-urban and rural areas. The growth rates of deposits and advances in rural and semi-urban areas have far exceed that of urban and metro areas.
Rationalisation and reduction of administrative, operating expenses, including temporary restructuring of employees and benefits has also been recommended. The ministry said that these steps could be reversed once a bank managed to ensure a successful turnaround.
