MISSION INDRADHANUSH: REVAMPING OF PUBLIC SECTOR BANKING IN INDIA

Source: YOJANA – January 2018

Author: D S Malik

Public Sector Banks (PSBs) play a vital role in the Indian Economy. However, due to various reasons such as delays in approvals and land acquisition, low global/domestic demand etc. the profitability of PSBs has been low. In order to overcome such issues, the government developed the ‘Indradhanush Plan’ in 2015.

The steps taken by the government in this regard include:

1. Separating the posts of Chairman and Managing Director – The CEO would get the designation of MD & CEO and another person would be appointed as non-executive chairman.
2. Banks Board Bureau (BBB) – BBB is 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 and also strategise for development of PSBs.
3. Capitalization of PSBs to comply with BASEL III norms.
4. De-stressing PSBs: The Infrastructure sector (including power, coal, steel etc.) has been the biggest recipients of credit during the past decades. However, these loans have been transformed in non-performing assets (NPAs) due to such as huge pendency of stalled projects, pending policy decisions to facilitate project implementation, non-availability of resources (such as coal) to the sectors, disputes relating to duties and taxes and inflexibility shown by RBI in allowing PSBs to restructure loans. The respective ministries and authorities have taken administrative level steps to address these issues.
5. NPA Disclosures: The RBI has taken following steps to ensure the early recognition and disclosure of NPAs.

• RBI has released guidelines for quicker recognition and resolution of stressed assets.
• Introduction of a new category of borrower as ‘Non-cooperative borrower’.
• Tightening the norms for Asset Reconstruction Companies.
• In addition, the Central Government has decided to establish six new Debt Recovery Tribunals (DRTs).

6. Providing more independence to banks.
7. Accountability: Government has introduced measures like Key Performance Indicators (KPIs) to measure the performance of PSBs, laying down strict guidelines for monitoring and filing of fraud cases with CBI and streamlining vigilance process.
8. Governance Reforms: At ‘GyanSangam’, a of conclave of PSBs and Financial Institution (FIs) in 2015 in Pune, the Prime Minister promised more financial autonomy and assured non-interference to PSBs. In return, the PSBs and FIs were expected to be accountable and improve their risk & human resource management practices.
9. Major banking reforms such as Insolvency and Bankruptcy Code, Recapitalisation of PSBs and Consolidation of Banks.

Meanwhile, the Central government has constituted an Alternative Mechanism for consolidation of Public Sector Banks under the chairmanship of Union Minister of Finance and Corporate Affairs.

Besides above, the government also plans to come up with ‘Indradhanush 2.0’, a comprehensive plan to ensure the health of PSBs which shall be finalised after a comprehensive Asset Quality Review by the RBI.