NEW DELHI : The Ministry of Finance has asked public banks to draw up a three-year roadmap to prepare for the challenges ahead and stay ahead of their private rivals in this extremely competitive sector.
As part of the strategy, banks were urged to seize new economic and technological business trends to drive business growth and develop specialized capabilities and competitive advantage.
This new round of banking reforms will be underpinned by a long-term clean-up of lenders’ balance sheets and a reduction in bad debts.
According to people familiar with the development, each state-run lender would be assigned targets for business growth in specific markets, infrastructure financing and opportunities in the corporate sector. These goals would be continuously monitored to ensure that all goals set at the beginning of a year are proceeding as planned.
Banks were asked to build a team of dedicated people internally as well as external experts, including specialized institutions. This team will work with all banks, including guiding lagging banks to meet their targets, the sources said.
Working with internal banking groups, the team will also identify strategic opportunities for each bank and key challenges in pursuing those opportunities and regulatory constraints faced by banks.
They will also identify goals for each bank to achieve over three years and find areas and opportunities for banks to develop internal capabilities to continuously assess and prioritize future business opportunities.
Emailed queries to the Department of Finance and the Financial Services Secretary went unanswered until press time on Friday evening.
This new round of banking reforms aims to ensure that the progress made by public lenders in fixing their accounts in recent years is maintained and that they become more professional in managing their operations.
The reforms were also discussed at the PSB Manthan held at the end of last month. The Manthan event identified opportunities for banks to address the financing needs of economic corridors, aspirational neighborhoods, MSME clusters, PM Gati Shakti program, green energy, defence, exports, e-commerce businesses as borrowers and government digital initiatives such as the e-Marketplace and Ayushman Bharat Digital Mission.
Over the past decades, state-owned banks have played a pivotal role in transforming the Indian economy and accelerating its growth, but the first half of the past decade has been quite difficult for these banks, characterized by issues such as excessive construction, increase in distressed loans, deep-rooted HR issues resulting in lack of customer focus, etc. These problems have also had a deep and pronounced impact on the banks’ finances.
To counter this, in addition to the unprecedented recapitalization of PSOs, the government has launched a series of comprehensive reforms. On the governance side, several initiatives have been undertaken, such as independent selection of senior executives through the Banks Board Bureau, performance-based extensions of managing directors and executive directors (EDs), increased strength of EDs and the introduction of the chief managing director role in major banks. The government has also embarked on an unprecedented consolidation exercise to take advantage of interbank synergies and scale advantages. As a result, the number of public banks has been reduced to a dozen from 27 in 2017.