Indradhanush to revamp PSB. Will the 7 steps work?

The Indradhanush framework for transforming the PSBs represents the most comprehensive reform effort undertaken since banking nationalisation in the year 1970.

What is the Indradhanush Mission?

Government of India’s 7 point reforms to revamp public sector banks and its performance.

Why do we need (yet another scheme) Indradhanush!

  • In the past few years, Public Sector Banks which have got predominant share of infrastructure financing have been sorely affected due to delay caused in approvals and land acquisition so, many large projects have stalled.
  • It resulted in lower profitability for PSBs, mainly due to provisioning for the restructured projects as well as for gross non-performing assets (NPAs).
  • High levels of non-performing assets in state-run banks have made it hard for the government to revive investment or accelerate growth.

 

Seven Colours to resurrect PSB?

  1. Appointments: 
    • The Government decided to separate the post of Chairman and Managing Director and there would be another person who would be appointed as non Executive Chairman of PSBs.
    • This approach is based on global best practices and as per the guidelines in the Companies Act to ensure appropriate checks and balances.
    • The selection process for both these positions has been transparent and meritocratic.
  2. Board of Bureau: 
    • The BBB will be a body of eminent professionals and officials, which replace the Appointments Board for appointment of Whole-time Directors as well as non-Executive Chairman of PSBs.
    • They will also constantly engage with the Board of Directors of all the PSBs to formulate appropriate strategies for their growth and development.
  3. Capitalisation:
    • As of now,the PSBs are adequately capitalized and meeting all the Basel III and RBI norms.
    • However, the GOI wants to adequately capitalize all the banks to keep a safe buffer over and above the minimum norms of Basel III.
    • Infusion of 25,000 crore rupees of capital into debt-laden banks in this fiscal in phased manner. Out of this 20,000 crore rupees would be injected in August 2015.
  4. De-Stressing PSBs: 
    • Projects are increasingly stalled/stressed thus leading to NPA burden on banks.
    • In a recent review, problems causing stress in the power, steel and road sectors were examined.
    • Pending policy decisions to facilitate project implementation/operation would be taken up by respective Ministries.
    • Flexibility in restructuring of existing loans wherever the Banks find
      viability.
    • Six new Debt Recovery Tribunals (DRT) to speed up the recovery of bad loans of the banking sector
    • To develop vibrant debt market for PSBs in order to reduce lending pressure on banks. Strengthen asset reconstruction of companies.
  5. Empowerment: 
    • There will be no interference from Government and Banks are encouraged to take their decision independently keeping the commercial interest of the organisation in mind.
    • Banks will build robust Grievances Redressal Mechanism for customers as well as staff so that concerns of the affected are addressed effectively in time bound manner.
    • The Government intends to provide greater flexibility in hiring manpower to Banks.
  6. Framework of Accountability: 
    • A new framework of Key Performance Indicators (KPIs) to be measured for performance of PSBs.
    • Streamlining vigilance process for quick action for major frauds including connivance of staff.
  7. Governance Reforms: 
    • The process of governance reforms started with “Gyan Sangam” – a conclave of PSBs and FIs organized at the beginning of 2015 in Pune.
    • There was focus group discussion on six different topics which resulted in specific decisions on optimizing capital, digitizing processes, strengthening risk management, improving managerial performance and financial inclusion.
    • Next Gyan Sangam will be held between 14 to 16 Jan 2016 to discuss strategy with top level officials.

Are PSBs now ready to compete and flourish in a fast-evolving financial services landscape, What say?


 

Published with inputs from Arun

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