Union Finance Minister Arun Jaitley has asked public sector banks to bring down their Non Performing Assets (NPAs). The ratio of gross NPAs to gross advances was up to 5.32 per cent at the end of September as against 4.82 per cent on September-end 2013.
The Finance Minister has also asked these banks to take steps for increasing the flow of credit to various sectors of the economy. He said he expected credit growth to pick-up as large number of projects were queuing up for loans. According to Reserve Bank data, credit growth fell to single-digit figures this fiscal.
Mr. Jaitley was addressing the quarterly review meeting of the heads of public sector banks and financial institutions and the meeting of the Steering Committee of the Pradhan Mantri Jan Dhan Yojna (PMJDY) here on Thursday.
The Finance Minister also said that the Government has taken steps to streamline the process of appointment of chief executive officers and executive directors of public sector banks with the aim of introducing objectivity in the process. He said that any external influence would be considered as a disqualification.
The Steering Committee review of the performance of the PMJDY noted that 20 per cent households remain uncovered across districts. The banks said they would cover these remaining households in sweep mode and also make special efforts to cover the uncovered households in 33 districts where the percentage of coverage is less than 50 per cent. It has been reported that out of 7.46 new accounts opened so far, nearly 75 per cent hold zero balance.
To make the country direct benefits transfers-ready, the committee asked the banks to increase the seeding of Aadhaar number in the accounts and be ready for rolling out the scheme in all the districts from 1st January, 2015
Appraise loan proposals without any fear or favour: Finmin to banks-Hindu Business Line The Finance Ministry has told public sector banks to appraise lending proposals without any “fear or favour’’.
It also hopes that the ratio of bad debts (technically known as Non Performing Assets or NPAs) to advances will come down with improvement in the economy.
Credit growth
These remarks have come at a time when credit growth in the first six months of the current fiscal has slipped to 9 per cent from 18.8 per cent in the last fiscal.
Similarly, the ratio of gross NPAs to gross advances has surged to 5.32 per cent at the end of September 30, 2014 against 4.82 per cent in the same period last fiscal. Another issue is related with State Bank of India’s MoU with Adani group for a loan of $1 billion.
The Finance Minister, Arun Jaitley, today chaired a quarterly review meeting of public sector banks. “We have suggested to the banks proactive steps in supporting various projects, so that credit offtake with regard to these projects picks up in a big way. Of course, the banks are conscious of their responsibility,” Jaitley told reporters after the meeting.
The meeting was attended by the heads of public sector banks and financial institutions.
Rising bad loans
When asked about rising NPAs, the Minister said that over the last two to three years, on account of slowdown, one area of concern is that the NPAs have risen and “therefore what proactive steps to be taken to ensure NPAs come down have been discussed’’.
However, he did not give much detail about the new measures.
Later, giving brief details about the proceedings of the meeting, a senior Finance Ministry official termed NPA as a legacy issue and claimed that things will change now.
“It has happened because of a number of reasons. For the last 2-3 years, there were no good projects coming up. So, when the total asset size does not increase, naturally your percentage of NPAs will go up. These are all legacy issues. Now, when economy looks up, when new portfolio is generated by banks, these percentages will start coming down,” he said.
He mentioned that banks have been told to “go ahead and do your appraisal without fear or favour from anybody. We are saying that to do it objectively, do it professionally and so once quality of lending improves, this issue of NPA should not remain.”
Jan Dhan Yojana
There was a separate meeting on Pradhan Mantri Jan Dhan Yojana for financial inclusion, during which progress made till now and the ways ahead were ahead.
One of the major issues is that out of 7.46 new accounts opened so far, almost 2/3rd are with zero balance or dormant account, but the Finance Ministry and banks are hopeful that things will improve with the transfer of direct benefit through bank account.
Govt panel shortlists 10 for jobs of PSU bank chiefs
NEW DELHI: The Appointments Board headed by RBI governor Raghuram Rajan has shortlisted 10 candidates as heads of eight public sector banks, but rejected a move to shift the chairman and managing director of a small bank to a larger entity.
Sources said the names of 10 candidates, who were interviewed last week, have been sent to the Central Vigilance Commission for clearance. Once vigilance clearance is obtained, the names will be sent for processing by the Appointments Committee of Cabinet, comprising Prime Minister Narendra Modi and home minister Rajnath Singh.
At the same time, it has been decided that those executive directors, who have spent at least four years at a Group A bank, such as Bank of Baroda, Canara Bank or Punjab National Bank, will be in contention for a job of chairman and managing director (CMD) at one of the Group A banks. As a result, Dena Bank CMD Ashwani Kumar, who was also interviewed, will not be shifted to one of the Group A banks. This leaves eight of the 10 executive directors in contention. Those who have been shortlisted include IDBI Bank deputy managing director B K Batra, who missed out becoming Union Bank of India CMD a few years ago. The others on the list include P Srinivas and B B Joshi, executive directors at Bank of Baroda, Arun Srivastava and P Koteeswaran of Bank of India, R K Goyal and Animesh Chauhan of Central Bank of India, K K Sansi and Mukesh Kumar Jain of Punjab & Sind Bank and Rakesh Sethi of Union Bank of India.
The government is keen to finalize the appointment of bank chiefs as several banks including BoB, PNB, Canara Bank and India Bank are headless. The finance ministry has been forced to rework the appointment process in the wake of widespread irregularities in the selection mechanism in recent years. Banks such as Syndicate Bank are without a full-time chief as its CMD S K Jain was arrested on corruption charges, while United Bank has been headless for months after Archana Bhargava resigned, citing health issues.
Appointing a PSU bank chairman-LiveMint
To stem the rot in public sector banks, the government should create a professional process for appointment
BY Krishnamurthy Subramanian
Following the arrest of S.K. Jain, the former chairman of Syndicate Bank, the government has modified the selection process for the appointment of chairmen of public sector banks (PSBs). This process has effectively added more layers of bureaucracy in the form of three screening committees (instead of one earlier). Rather than tinkering with a failed system, and possibly making it worse, the government needs to institute a process that incorporates the best practices for the selection of the leader of a PSB.
Unlike the case of a private sector bank, where the selection process follows an extensive search that is usually handled by an executive search firm, no search process is stipulated in the case of the selection of chairmen of PSBs. A shortlist is generated based on certain demographics of general managers in all PSBs, such as age, number of years of experience as general manager, etc. This shortlist is then screened for potential cases of corruption or vigilance enforcement. The shortlisted candidates are interviewed usually for 15-30 minutes before a decision is made on the eventual candidate. Given the difficulty in judging the candidate in such a short span of time, rumours abound about the outcome being pre-decided based on political affiliations/extraneous reasons.
Several aspects of the current process render it sub-optimal. First, government officers and regulators are unlikely to possess the skills necessary to judge the potential talent necessary for someone to lead a bank with assets of Rs.5 trillion or more. Banking is a very specialized activity, and top management needs to combine strategic foresight with a good commercial knowledge of sectors to lend to, prudent risk management and human resource skills. For highly skilled activities, selection by a peer group generally ensures that those who select have the ability and discernment to assess the required attributes.
For example, if the selection of the Indian cricket team for the forthcoming cricket World Cup is left in the hands of the Board of Control for Cricket in India (BCCI) administrators rather than the selection committee comprising former cricketers, one can only shudder to think about the potential performance of the team. Just like a cricketer representing the national team requires special skills, the chairman of a PSB also needs enormous skills of leadership, persuasion, risk management, people management, etc. Former cricketers who have played the game at the top level comprise the selection committee for the Indian cricket team. Similarly, only someone who has been the chief executive officer of a large bank can understand the skills required for the job. No bureaucrat, politician or regulator can possess the skill to judge whether or not a particular candidate has the necessary ability. The current perception that the selection by such a peer group is unnecessary for top management positions in PSBs fails to recognize the specialized nature of banking and (in the context of government appointments) lends itself more easily to abuse.
Second, the way the selection committee is presently constituted leads to inadequate interaction with the shortlisted candidates. Consider the process of appointment of assistant professors in research-oriented universities. Because research requires application of diverse skills, a prospective candidate spends an entire day meeting and interacting with every research-oriented faculty in the department for 30 to 45 minutes. The one-on-one interaction provides multiple opportunities for each individual faculty to evaluate the candidate. A follow-up discussion where each individual faculty shares his/her assessment of the candidate leads to a rich assessment of the candidate’s attributes. Similarly, interactions with each member of a selection committee, comprising former bankers, would better assess the potential for leading a bank.
The Nayak committee’s recommendations in this context are worth considering. Till the time that the boards of PSBs are professionalized, the committee recommended setting up of a Bank Boards Bureau (BBB), which would advise on top bank management selection. BBB will comprise senior or retired commercial bankers. It should ideally comprise a compact set of three bankers, of whom one would be the chairman. As this would be a full-time position, serving bank officers would need to resign, if chosen. For the process to carry credibility, it is important that the chairman and members be of high standing and should have led banks. Their choice should be made by the government in consultation with the Reserve Bank of India (RBI). As the appointments to the top management of banks will continue to require the concurrence of the appointments committee of the cabinet, it is desirable that BBB’s recommendations be generally accepted by the government. In cases where the BBB’s recommendations are not followed, BBB should be mandated to make a public disclosure of recommendations that were rejected by the government.
To stem the rot in PSBs, the government would be well advised to create this professional process for appointment of top management in the PSBs. Given the precarious position of PSBs and the substantial amount of capital that the government may have to provide in the next five years, such a step has become a sine qua non.
Krishnamurthy Subramanian teaches finance at the Indian School of Business and was a member of the P.J. Nayak Committee on governance of bank boards.
No comments:
Post a Comment