BUSINESS

Government to transfer ownership in PSU banks to a new holding company

Finance Minister Arun Jaitely interacts with MoS Jayant Sinha in New Delhi on Friday – the government’s Indradhanush plan will infuse Rs.70,000 crore of capital into banks over the next four years.— PHOTO: Prashant Nakwe

Finance Minister Arun Jaitely interacts with MoS Jayant Sinha in New Delhi on Friday – the government’s Indradhanush plan will infuse Rs.70,000 crore of capital into banks over the next four years.— PHOTO: Prashant Nakwe  

The government on Friday announced a seven-point action plan, Indradhanush to infuse professionalism and fresh capital in to public sector banks.

As part of the plan, the government announced the setting up of Bank Board Bureau (BBB) that will give way to holding company to which the Centre will transfer it ownership of all these banks.

The BBB will be headed by a Chairman and will comprise six other members — three government officials and three experts, two of which will be from the private sector. It will make recommendations for senior appointments and also advise banks on strategies for consolidation among them including mergers and acquisitions.

“Banks are encouraged to come forward with proposals for consolidation strategies…this will be a bottoms up approach,” Minister of State for Finance Jayant Sinha said at a press conference on Friday unveiling plan Indradhanush, which includes the Government’s plan of infusing Rs.70,000 crore capital into banks over the next four years.

The government also announced that it had hired two professionals from the private sector – P. S. Jayakumar from VBHC Value Homes as the MD and CEO for Bank of Baroda and Rakesh Sharma from Laxmi Vilas Bank as MD & CEO of Canara Bank.

In addition, former independent director of Infosys Ravi Venkatesan is among the newly appointed non-executive Chairman. He has been appointed to the Bank of Baroda.

“For some years, banks have been facing a challenging situation but there is no cause for panic or alarm… addressing the stress in banks also requires addressing the problems of the sectors causing this stress…such as power, steel, highways, discoms and to some extent sugar,” Union Finance Minister Arun Jaitley said addressing the press conference.

Financial Services Secretary Hasmukh Adhia made a presentation on the proposed revamp and said: “The Government has issued a circular that there will be no interference from it and banks are encouraged to take their decisions independently keeping commercial interests in mind…a cleaner distinction between interference and intervention has been made.”

Banks have also been asked to build robust grievance redressal mechanisms for customers and staff, he said. “In addition, the KPIs will be linked to the performance bonus paid to the MDs and CEOs of PSU banks. ESOPs are also being considered for the top management of PSU banks,” Mr. Adhia said.

The government said that as per the latest figures the gross NPAs arising out of the infrastructure sector have reached Rs.32,000 crore, and the GNPAs of the iron & steel sector are at Rs.31,000 crore. To de-stress the banks, the government stressed the need to develop a vibrant corporate debt market and strengthen existing asset reconstruction companies.

The banks, Mr. Jaitley said, will need a total of Rs.1,80,000 crore over the next four years to meet their capitalisation needs and said the revamp plans announced on Friday will make raising the balance Rs.1,10,000 crore from the markets easier.

“The government has reviewed the problems causing stress in the power, steel and roads sector.

It found that the major reasons affecting projects in these sectors were delays in obtaining permits, land acquisition, lack of availability of fuel (both coal and gas), cancellation of coal blocks, closure of iron ore mines, etc,” Mr. Adhia said.

Significantly for banks, the government announced a new 100-point framework of Key Performance Indicators to measure the performance of PSU banks. Twenty five points each will be allocated to ‘Efficiency of capital use’ and ‘Growth processes’, while 15 points each will be allocated to ‘NPA management’ and ‘Financial Inclusion’.

The remaining 20 points will be for qualitative parameters such as improvement of external credit rating.

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