Sarbajeet K. Sen

New Delhi, Jan. 28

THE public sector banking industry might not be the same very soon with the proposed new autonomy package promising to usher banks into a new world of freedom.

Some of the issues under the Government's consideration are removing bank officials from the purview of the Central Vigilance Commission (CVC) and the Central Bureau of Investigation (CBI), freedom to determine compensation packages for specialised staff including differential salary packages and a go-ahead to the acquisition of private companies.

Other proposals include granting complete freedom to banks on human resources issues such as staffing pattern, recruitment, placement, transfer, training, promotion and pensions.

The proposed package was discussed at the meeting of the Finance Minister, Mr P. Chidambaram, with Chief Executives of PSU banks. Also on the anvil is providing freedom from taking prior approval before opening overseas branches or for setting up subsidiaries or merging unviable branches.

"It is time to break away from the past to shed the strait-jacket approach and allow flexibility and full autonomy to the boards of PSBs in terms of hiring of employees, training of employees, compensation structure of employee and other related issues," a Finance Ministry note on Managerial Autonomy for Public Sector Bank prepared for the meeting has said.

The autonomy, however, will be linked to adopting good corporate governance practices by the banks. "Once the governance issues are settled, autonomy to the boards could follow," the Finance Ministry note said.

The autonomy package also proposes to grant freedom to pursue new lines of business and exiting any line of business.

The suggestion to remove banks from the purview of CVC and CBI is to create a level-playing field with the private sector. "Bank executives are required to take risks for business growth and development. To provide level-playing field with private sector banks, PSB officials may be taken out of the purview of CVC and CBI," the note said. Currently, junior officers up to Scale IV are exempt from a CVC probe.

Though freedom may be given to fix remuneration and compensation for specialised staff, the Government said it would stipulate specific ceilings within which the banks would be required to limit the salary packages.


  • Removing bank officials from CVC, CBI purview
  • Differential compensation package for specialised staff within ceiling
  • Autonomy in range of HR issues
  • Freedom to acquire private companies
  • (This article was published in the Business Line print edition dated January 29, 2005)
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