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Fm For Some Years Banks Are Facing Challenging Time But No Cause Of Panic;

Dated:- 17-8-2015 - Government Announces Public Sector Banks (Psbs) Revamp Plan; Announces Appointment of MD and CEO Of Five(5) Psbs As Well As Five(5) PSBs Specific Capital Allocation of Rs. Tranche 1 and Tranche 2 to Thirteen (13) PSBs; Bank BReplacing the Appointments Board for Appointment of Whole-Time Directors and Non-Executive Chairman of PSBs a New Framework of Key Performance Indicators (Kpis) to be Measured for Evaluating the Performance of Psbs Also Announced Among Others The Union Fi .....

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Sinha, Secretary, Department of Financial Services (DFS), Dr. Hasmukh Aadhia and Chief Economic Adviser Dr. Arvind Subramanian and senior officers of the Ministry of Finance among others. Later Dr Aadhia made a comprehensive and self-contained presentation highlighting the various policy initiatives taken by the Department in last one year and perspective decisions to be taken in near future to overall improve the performance of the PSBs. Details of the presentation made on the occasion is as f .....

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structured projects as well as for gross NPAs. The present Government has put in place a comprehensive framework for improving PSBs. Most recently, we have made the announcement of capital allocation by Government for PSBs in the next four years. Announcement of capital plans for the PSBs is only one of the many steps taken by the Government. The other steps taken by Government are as follows:- A) Appointments: The Government decided to separate the post of Chairman and Managing Director by pres .....

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andidates were also allowed to apply for the position of MD & CEO of the five top banks i.e. Punjab National Bank, Bank of Baroda, Bank of India, IDBI Bank and Canara Bank. Three stage screening was done for the MD s position culminating into final interview by three different panels. Five MD& CEOs were appointed earlier. Appointments of MD & CEOs of five more banks - Bank of Baroda, Bank of India, Canara Bank, IDBI Bank and Punjab National Bank and Non-executive Chairman of 5 banks .....

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airman Name of the Bank Name Age Present/Last Position held Bank of Baroda Ravi Venkatesan 51 yrs Independent Director, Infosys Bank of India G Padmananbhan 60 yrs Retired ED of Reserve Bank of India Canara Bank T N Manoharan 59 yrs Director, Tech Mahindra, Public Health Foundation Vijaya Bank G Narayanan 66 yrs Retired ED, Indian Overseas Bank Indian Bank T C V Subramainian 66 yrs Retired CMD, Exim Bank The CVs of newly appointed MD & CEOs / non-executive Chairman are in the docket. The pro .....

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Bank Board Bureau (BBB) was made by Hon ble Finance Minister in his Budget Speech for the year 2015-16. The BBB will be a body of eminent professionals and officials, which will replace the Appointments Board for appointment of Whole-time Directors as well as non-Executive Chairman of PSBs. They will also constantly engage with the Board of Directors of all the PSBs to formulate appropriate strategies for their growth and development. The structure of the BBB is going to be as follows; the BBB .....

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. C) Capitalization: As of now, the PSBs are adequately capitalized and meeting all the Basel III and RBI norms. However, the Government of India wants to adequately capitalize all the banks to keep a safe buffer over and above the minimum norms of Basel III. We have, therefore, estimated how much capital will be required this year and in the next three years till FY 2019. If we exclude the internal profit generation which is going to be available to PSBs (based on the estimate of average profit .....

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tor Banks. Out of the total requirement, the Government of India proposes to make available ₹ 70,000 crores out of budgetary allocations for four years as per the figures given below: (i) Financial Year 2015 -16 - ₹ 25,000 crore (ii) Financial Year 2016-17 - ₹ 25,000 crore (iii) Financial Year 2017-18 - ₹ 10,000 crore (iv) Financial Year 2018-19 - ₹ 10,000 crore Total - ₹ 70,000 crore We estimate that PSB s market valuations will improve significantly due to ( .....

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ely capitalized to support economic growth. In the Supplementary Demand passed by parliament recently, an amount of Rs.12,000 crore has already been provided, in addition to Rs.7,940 crores already provided in the budget of FY 2015-16. The remaining Rs.5,000 crore would be provided in the second Supplementary later this year. The manner of allotting Rs.25,000 crore capital this year, as announced earlier, is as follows: Tranche 1: About 40% of this amount will be given to those banks which requi .....

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to improve their performance in the current year. Eight banks which did not get any money in first two tranche will get preference. As per the calculations done for Tranche 1 and Tranche 2, the specific capital allocation for each Bank is worked out as follows. This amount would be released soon. S.No Name of Bank Capital Allocation (Rs. in Crore) 1 State Bank of India 5531 2 Bank of India 2455 3 I.D.B.I. 2229 4 Bank of Baroda 1786 5 Punjab National Bank 1732 6 Canara Bank 947 7 Indian Overseas .....

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capital from the capital markets. (D) (a) De-stressing PSBs The infrastructure sector and core sector have been the major recipient of PSBs funding during the past decades. But due to several factors, projects are increasingly stalled/stressed thus leading to NPA burden on banks. In a recent review, problems causing stress in the power, steel and road sectors were examined. It was observed that the major reasons affecting these projects were delay in obtaining permits / approvals from various go .....

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age ratio; inability of banks to restructure projects even when found viable due to regulatory constraints. In case of steel sector the prevailing market conditions, viz. global over-capacity coupled with reduction in demand led to substantial reduction in global prices, and softening in domestic prices added to the woes. A meeting was held on 28th April, 2015 at Mumbai first with all the banks and concerned Ministries to understand the problems for each sector. Subsequently, meetings were held .....

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ies/Departments. (iii) Ministry of Coal/PNG will evolve policies to address long-term availability of fuel for these projects. (iv) Respective Discoms will be provided hand-holding towards enabling early reforms. (v) Promoters will be asked to bring in additional equity in an attempt to address the worsening leverage ratio of these projects. Wherever the promoters are unable to meet this requirement, the Banks would consider viable options for substitution or taking over management control. (vi) .....

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SARFASI mechanism the following additional steps have been taken to address the issue of NPAs: i. RBI has released guidelines dated 30 January, 2014 for Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalizing Distressed Assets in the Economy suggesting various steps for quicker recognition and resolution of stressed assets: Creation of a Central Repository of Information on Large Credits (CRILC) by RBI to collect, store, and .....

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o Infrastructure and Core Industries - RBI issued guidelines on July 15, 2014 and December 15, 2014 - Long term financing for infrastructure has been a major constraint in encouraging larger private sector participation in this sector. On the asset side, banks will be encouraged to extend long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies, (also known as the 5/25 structure). iii. Wilful Default/Non-Cooperative Borrowers: RBI has now came .....

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new loans sanctioned to any other company that has on its board of directors any of the whole time directors/promoters of a non-cooperative borrowing company or any firm in which such a non-cooperative borrower is in charge of management of the affairs. iv. Asset Reconstruction Companies: Taking further steps in the area, RBI has tightened the norms for Asset Reconstruction Companies (ARCs), vide guidelines dated August 5, 2014, where the minimum investment in Security Receipts should be 15% whi .....

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there will be no interference from Government and Banks are encouraged to take their decision independently keeping the commercial interest of the organisation in mind. A cleaner distinction between interference and intervention has been made. With autonomy comes accountability, accordingly Banks have been asked to build robust Grievances Redressal Mechanism for customers as well as staff so that concerns of the affected are addressed effectively in time bound manner. The Government intends to .....

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stry and banks and finalized. The entire exercise took very long and sometimes the targets for banks used to be finalized only towards the end of the year which is not a desirable thing to do. There are two changes we are making in this: (i) A new framework of Key Performance Indicators (KPIs) to be measured for performance of PSBs is being announced. It is divided into four sections totaling up to 100 marks. 25 marks each are allotted to indicators relating to efficiency of capital use and dive .....

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ld be assessed based on a presentation to be made by banks to a committee chaired by Secretary, Department of Financial Services. The new framework for KPIs is in the docket. Operating performance evaluated through the KPI framework will be linked to the performance bonus to be paid to the MD & CEOs of banks by the Government. The quantum of performance bonus is also proposed to be revised shortly to make it more attractive. We are also considering ESOPs for top management of PSBs. (b) DFS h .....

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up (RMG) in banks to monitor pre-sanction and disbursement, nodal officer for filing complaints with CBI, provisioning in four quarters and creation of Central Fraud Registry have been laid down. Department of Financial Services (DFS) has directed PSBs to make CVO as the nodal officer for fraud exceeding ₹ 50 crore, in consortium lending the lead bank will file the FIR for all banks and CBI has designated one officer for reviewing and monitoring progress of bank s fraud cases. (G) Governan .....

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al inclusion. The decision to set up a Bank Board Bureau which was subsequently announced in the Budget Speech of Hon ble Finance Minister, came out of the recommendations of Gyan Sangam. Also, at this conclave, Hon ble Prime Minister made a significant promise to the bankers that there would be no interference from any Government functionary in the matter of their commercial decisions. This promise of Hon ble Prime Minister was immediately translated into a circular issued to all banks assuring .....

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gaging with the Banks through review meeting and sessions for strategic reviews etc. The focus is on improving HR management practices and removing barriers so that the Banks can share and work together on common resources. Various steps have been taken to empower Bank s Boards. Continuing with this year s Gyan Sangam, next Gyan Sangam will be held between 14-16.01.2016 to discuss strategy with top level officials. Further, scheme of ESOPs for top management is under formulation. Other strategic .....

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k of India G Padmananbhan 60 yrs Retired ED of Reserve Bank of India Canara Bank T N Manoharan 59 yrs Director, Tech Mahindra, Public Health Foundation Vijaya Bank G Narayanan 66 yrs Retired ED, Indian Overseas Bank Indian Bank T C V Subramainian 66 yrs Retired CMD, Exim Bank Details of newly appointed MD & CEO Name of the Bank Name Age Present Position Bank of Baroda P S Jayakumar 53 yrs MD & CEO of VBHC Value Homes Pvt Ltd. Bank of India M.O. Rego 56 yrs Deputy Managing Director, IDBI .....

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M (Domestic) 5 10 bps d Cost (Overhead) as % of total income* 2.5 250 bps (reduction) e Cost (Expenses / provision for employees) as % of total income* 2.5 100 bps (reduction) *Total income = Net Interest Income + Total other Income. Growth/Diversification of business / processes 25 a Fee Based Income as % of total income** 7.5 200 bps b Increase in Retail Credit as % of total credit 7.5 300 bps c Increase in number of Transactions through alternate channels as % total transactions 5 500 bps d S .....

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