Comprised of seven alphabets- ABCDEFG
A) Appointments:
The Government decided to separate the post of Chairman and Managing Director by
prescribing that in the subsequent vacancies to be filled up the CEO will get the designation
of MD & CEO 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. The entire process of selection for
MD & CEO was revamped. Private sector candidates were also allowed to apply for the
position of MD & CEO of the five top banks i.e. Punjab National Bank, Bank of Baroda,
Bank of India, IDBI Bank and Canara Bank. Three stage screening was done for the MD’s
position culminating into final interview by three different panels
B) Bank Board Bureau:
The announcement of the Bank Board Bureau (BBB) was made by Hon’ble Finance
Minister in his Budget Speech for the year 2015-16. The BBB will be a body of eminent
professionals and officials, which will 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. The structure of the BBB is going to be as follows; the BBB
will comprise of a Chairman and six more members of which three will be officials and three
experts (of which two would necessarily be from the banking sector). The Search Committee
for members of the BBB would comprise of the Governor, RBI and Secretary (FS) and
Secretary (DoPT) as members. The BBB would broadly follow the selection methodology as
approved in relevant ACC guidelines.
C) Capitalization:
As of now, the PSBs are adequately capitalized and meeting all the Basel III and RBI
norms. However, the Government of India wants to adequately capitalize all the banks to
keep a safe buffer over and above the minimum norms of Basel III. We have, therefore,
estimated how much capital will be required this year and in the next three years till FY 2019.
If we exclude the internal profit generation which is going to be available to PSBs (based on
the estimate of average profit of the last three years), the capital requirement of extra capital
for the next four years up to FY 2019 is likely to be about Rs.1,80,000 crore. This estimate
is based on credit growth rate of 12% for the current year and 12 to 15% for the next three
years depending on the size of the bank and their growth ability. We are also presuming that
the emphasis on PSBs financing will reduce over the years by development of vibrant
corporate debt market and by greater participation of Private Sector Banks.
D) a) De-stressing PSBs
The infrastructure sector and core sector have been the major recipient of PSBs’ funding
during the past decades. But due to several factors, 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. It was observed that the major reasons
affecting these projects were delay in obtaining permits / approvals from various
governmental and regulatory agencies, and land acquisition, delaying Commercial Operation
Date (COD); lack of availability of fuel, both coal and gas; cancellation of coal blocks;
closure of Iron Ore mines affecting project viability; lack of transmission capacity; limited
off-take of power by Discoms given their reducing purchasing capacity; funding gap faced by
limited capacity of promoters to raise additional equity and reluctance on part of banks to
increase their exposure given the high leverage ratio; inability of banks to restructure projects
even when found viable due to regulatory constraints. In case of steel sector the prevailing
market conditions, viz. global over-capacity coupled with reduction in demand led to
substantial reduction in global prices, and softening in domestic prices added to the woes
E) Empowerment:
The Government has issued a circular that 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. A cleaner distinction between interference and
intervention has been made. With autonomy comes accountability, accordingly Banks have
been asked to 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. The
Government is committed to provide required professionals as NoDs to the Board so that
well-informed and well-discussed decisions are taken
F) Framework of Accountability:
(a) The present system for the measurement of bank’s performance was a system called SoI –
Statement of Intent. Based on certain criteria decided by Ministry of Finance, the banks used
to come up with their annual target figures which was discussed between the Ministry and
banks and finalized. The entire exercise took very long and sometimes the targets for banks
used to be finalized only towards the end of the year which is not a desirable thing to do.
G) 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 which was attended by all stake-holders
including Prime Minister, Finance Minister, MoS (Finance), Governor, RBI and CMDs of all
PSBs and FIs. 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. The decision to set up a Bank
Board Bureau which was subsequently announced in the Budget Speech of Hon’ble Finance
Minister, came out of the recommendations of Gyan Sangam. Also, at this conclave, Hon’ble
Prime Minister made a significant promise to the bankers that there would be no interference
from any Government functionary in the matter of their commercial decisions.
A) Appointments:
The Government decided to separate the post of Chairman and Managing Director by
prescribing that in the subsequent vacancies to be filled up the CEO will get the designation
of MD & CEO 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. The entire process of selection for
MD & CEO was revamped. Private sector candidates were also allowed to apply for the
position of MD & CEO of the five top banks i.e. Punjab National Bank, Bank of Baroda,
Bank of India, IDBI Bank and Canara Bank. Three stage screening was done for the MD’s
position culminating into final interview by three different panels
B) Bank Board Bureau:
The announcement of the Bank Board Bureau (BBB) was made by Hon’ble Finance
Minister in his Budget Speech for the year 2015-16. The BBB will be a body of eminent
professionals and officials, which will 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. The structure of the BBB is going to be as follows; the BBB
will comprise of a Chairman and six more members of which three will be officials and three
experts (of which two would necessarily be from the banking sector). The Search Committee
for members of the BBB would comprise of the Governor, RBI and Secretary (FS) and
Secretary (DoPT) as members. The BBB would broadly follow the selection methodology as
approved in relevant ACC guidelines.
C) Capitalization:
As of now, the PSBs are adequately capitalized and meeting all the Basel III and RBI
norms. However, the Government of India wants to adequately capitalize all the banks to
keep a safe buffer over and above the minimum norms of Basel III. We have, therefore,
estimated how much capital will be required this year and in the next three years till FY 2019.
If we exclude the internal profit generation which is going to be available to PSBs (based on
the estimate of average profit of the last three years), the capital requirement of extra capital
for the next four years up to FY 2019 is likely to be about Rs.1,80,000 crore. This estimate
is based on credit growth rate of 12% for the current year and 12 to 15% for the next three
years depending on the size of the bank and their growth ability. We are also presuming that
the emphasis on PSBs financing will reduce over the years by development of vibrant
corporate debt market and by greater participation of Private Sector Banks.
D) a) De-stressing PSBs
The infrastructure sector and core sector have been the major recipient of PSBs’ funding
during the past decades. But due to several factors, 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. It was observed that the major reasons
affecting these projects were delay in obtaining permits / approvals from various
governmental and regulatory agencies, and land acquisition, delaying Commercial Operation
Date (COD); lack of availability of fuel, both coal and gas; cancellation of coal blocks;
closure of Iron Ore mines affecting project viability; lack of transmission capacity; limited
off-take of power by Discoms given their reducing purchasing capacity; funding gap faced by
limited capacity of promoters to raise additional equity and reluctance on part of banks to
increase their exposure given the high leverage ratio; inability of banks to restructure projects
even when found viable due to regulatory constraints. In case of steel sector the prevailing
market conditions, viz. global over-capacity coupled with reduction in demand led to
substantial reduction in global prices, and softening in domestic prices added to the woes
E) Empowerment:
The Government has issued a circular that 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. A cleaner distinction between interference and
intervention has been made. With autonomy comes accountability, accordingly Banks have
been asked to 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. The
Government is committed to provide required professionals as NoDs to the Board so that
well-informed and well-discussed decisions are taken
F) Framework of Accountability:
(a) The present system for the measurement of bank’s performance was a system called SoI –
Statement of Intent. Based on certain criteria decided by Ministry of Finance, the banks used
to come up with their annual target figures which was discussed between the Ministry and
banks and finalized. The entire exercise took very long and sometimes the targets for banks
used to be finalized only towards the end of the year which is not a desirable thing to do.
G) 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 which was attended by all stake-holders
including Prime Minister, Finance Minister, MoS (Finance), Governor, RBI and CMDs of all
PSBs and FIs. 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. The decision to set up a Bank
Board Bureau which was subsequently announced in the Budget Speech of Hon’ble Finance
Minister, came out of the recommendations of Gyan Sangam. Also, at this conclave, Hon’ble
Prime Minister made a significant promise to the bankers that there would be no interference
from any Government functionary in the matter of their commercial decisions.
No comments:
Post a Comment