PSU Banks’ Asset Quality Problem May Continue For Next 3 Quarters

Government’s much anticipated plan “Indradhanush” for transforming Public Sector Banks (PSBs) via bottoms-up approach launched in August is on track to put PSU banks again on the path of growth. Recently a meeting was held where finance ministry official under the chairmanship of MOS for finance Jayant Sinha reviewed the progress of the mission Indradhanush, which is considered the most comprehensive reform effort undertaken since banking nationalisation in 1970. Importantly under this plan as framework has been suggested that comprised of appointments, Banks Board Bureau (BBB), capitalization plan, destressing, empowerment, framework of accountability and governance reforms among others. 

In the meeting officials discussed about the growth of banks wherein issue of poor asset quality was discussed. The banks clarified that the problem may continue for two to three quarters before their situation improves. Banks were advised to make judicious use of their capital. Also various issues related to board and governance were discussed in detail. These included the board structure and issues relating to appointment of directors, functioning of board level committees and other measures to improve the decision making process of the board. Risk management practices were also discussed.

Meeting also has shadow of recent alleged money laundering of around Rs 6000 crore from a Bank of Baroda branch and also deliberated on the issue of having robust compliance policies and the need to have requisite checks in place to detect any violations, along with strong alarm and signalling systems. The issue of human intervention in compliance related issues was also discussed and it was deliberated as to how to make it completely system driven. MOS also discussed about the issue of non-core assets and whether disposing them off is in commercial interest of the banks to improve capital adequacy was discussed.

The meeting was attended by Secretary, Dept of Financial Services, Anjuli Chib Duggal, senior officials from the Ministry of Finance and Chairmen and Managing Directors of various PSBs. The next ‘Gyan Sangam’, proposed to be held in January 2016, was also discussed.