The Hindu Business Line : Ministry unhappy over lower growth projections

NEARLY half-a-dozen public sector banks, including heavyweights State Bank of India and Punjab National Bank, have been asked by the Ministry of Finance to rework the Statement of Intent of Annual Goals for the current fiscal.

The move comes in the wake of the Finance Minister, Mr P. Chidambaram, recently expressing unhappiness over some of the banks projecting lower targets compared to the previous fiscal. He said it was difficult to comprehend the lower projections at a time when the economy showed 7 per cent growth.

"We were concerned at the lower projections. About six or seven banks have been asked to review their targets. These include big banks such as SBI and PNB and smaller ones like UCO Bank," a senior Finance Ministry official told Business Line. All 27 public sector banks recently submitted their Statement of Intent to the Finance Ministry. Lower targets were projected for reduction of NPAs, growth of deposits and advances.

The official conceded that the banks might have their rationale for the projections that did not match Finance Ministry's expectations. However, he said the Government wanted them to set stiff targets. "The banks might have their reasons for such numbers. But we would like them to set higher targets," the official said.

The Finance Ministry recently asked government-owned banks for their annual statement of intent on financial targets. The system, set to become an annual ritual, replaces the earlier proposal for a memorandum of understanding (MoU) between the Finance Ministry and the banks.

The Statement of Intents have retained the format proposed under the MoU system which required banks to provide projections on parameters such as return on average assets, return on average net worth, capital adequacy ratio, net interest margin, cost to income ratio and profit after tax. The non-financial parameters included compliance with Basel-II norms, improvement in risk management practices and new product innovation.

The proposal for MoUs was dropped in the nascent stage. The Government felt such formal agreements could be construed as unwarranted interference in the working of the banks.

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