The Hindu Business Line : Govt clears autonomy package for PSU banks

THE tussle in the banking space would now be on an equal footing with the Ministry of Finance today clearing a new autonomy package for public sector banks aimed at creating a level-playing field for state-owned banks with their private sector counterparts.

Besides allowing PSU banks the freedom to decide on virtually the entire gamut of human resource issues, the package permits them to undertake acquisitions of companies or business, close or merge unviable branches, open overseas offices, set up subsidiaries, take up a new line of business or exit an existing business - all without the need to seek prior Government approval.

"We want public sector banks to be more market driven. They should compete on a level playing field with private banks and foreign banks," the Joint Secretary, Banking, Ministry of Finance, Mr Amitabh Verma, said while briefing the press.

He, however, clarified that the freedom to the board of directors to open new lines of business and to acquire companies has to be exercised within the permitted lines of businesses under the Banking Regulation Act.

While a certain degree of autonomy would be common to all banks, a higher degree of freedom would be permitted for `stronger' banks that have made a net profit for the past three years, capital adequacy of 9 per cent or more, net non-performing assets (NPAs) of less than 4 per cent and minimum owned funds of Rs 300 crore.

The boards of stronger banks would have the additional freedom of having differential pay structures, framing human resources policies and procedures for recruitment, including eligibility criteria, mode of selection and level of entry and creation of additional posts of general managers.

While the pay structure for `specialised cadre' would be board-driven, for all other staff the bank would have to limit the differential structure within the pay-scales of the particular grade.

The package has proposed that the differential remuneration will be subject to an overall ceiling for establishment expenditure.

Mr Verma said that barring a couple of banks all others would fall in the `stronger' category. "Only two or three banks would be outside the category of strong banks," he said.

On a wider plane, all PSU banks would now be allowed to prescribe standards for categorisation of branches based on the volume of business and other relevant factors. They would also have the freedom to prescribe essential academic qualifications, minimum qualification standards, and modalities of promotion and recruitment to various categories.

The autonomy package also aims at removing fears among bank officials on their being hounded by the investigative agencies on commercial decisions taken by them in good faith at a later date if such decision leads to creation of bad debts. Towards this, the Government has said that banks should "recognise that bonafide errors do occur while making decisions relating to commercial judgment."

The package also permits senior bank executives to undertake foreign visits to interact with investors, depositors and other stakeholders.

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