In a step towards consolidation, the Government wants banks to consider merger. It has also proposed more transparency in the appointment of independent director on the bank board.

“The Government wants to encourage Bank Boards to restructure their business strategy and also suggest a way forward for their consolidation and merger with other banks if it is a win-win for both,” the Finance Ministry said in a statement discussing reform measures for public sector banks. At present, there are 27 public sector banks including State Bank of India and its associate banks.

Terming performance of public sector banks as sub-optimal so far, the statement has listed measures taken already and to be taken in near future. These measures are based on the crown sourcing mechanism and discussion, chaired by the Prime Minister himself, with the Bank Chairman in Pune. “The focus of these reforms is to improve the quality of deliberations in bank boards, leading to better asset quality and further resulting in better market valuations,” the statement said.

Independent directors

It said that guidelines relating to appointment of non-official directors are being revisited to ensure that bank-boards get people with relevant expertise. “Anybody eligible would be able to apply through a web site which will soon be available in the public domain,” it said. It may be noted that the Finance Minister, while announcing the budget, proposed setting up an autonomous Bank Board Bureau with professionals as its members. It would be responsible for search and selection of heads of PSBs, as also for Non-Official Directors on the Boards of Banks. This would be an interim step towards moving in the direction of having a Bank Investment Company.

Performance incentive for banks

The statement has also talked about more incentives for better performance. “The banks have been entering into an MoU for achieving certain objectives known as Statement of Intent. The whole system of Statement of Intent is being revised with provision for higher cash incentives,” it said. It may be noted that the Government has recently amended the norms for infusing capital in the banks. Now, money will be given only to efficient banks and not just capital deprived banks. Accordingly, only nine banks were chosen for re-capitalisation during 2014-15 and given Rs 6,990 crore.

The Government has already separated the post of Chairman and Managing Director along with enabling provision for the appointment as MD & CEO in five major banks, so that wider choice is available. Both public sector and private sector bankers can apply and higher salary could be given to deserving candidates. It has revamped the present selection system which includes three separate interviews, allotment of banks on merit-cum-preference basis.

The Government has also issued clear instructions regarding no interference whatsoever in any matter whether related to HR issues or credit decisions or even otherwise.

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