Covid-19: Cut costs, govt tells PSBs after PNB buys Audis for top bosses

The Union government has asked state-owned banks to introduce a slew of measures to cut administrative costs in light of the Covid-19 pandemic.

The Centre has advised banks to make a 20 per cent reduction in expenditure related to non-core business activities, along with deferring “avoidable expenditure” on “purchase of staff cars”, “refurbishment of guest houses” and on the interior decoration of administrative and back offices. The move comes days after Punjab National Bank bought three Audi cars for its top management.

“In the context of the Covid-19 pandemic, it is necessary that banks take appropriate measures to ensure productive use of their financial resources for core business activities,” the finance ministry said in a communiqué to chief executives of all the public sector banks (PSBs) on Wednesday. PSBs have been asked to place the government’s advisory before their respective boards at the next meeting, and “issue appropriate instructions internally,” ensuring that they give “effect to this advisory in letter and spirit.”

News agency Press Trust of India reported on June 9 that PNB took delivery of three Audi cars worth Rs 1.34 crore last month. The cars were to be used by the managing director (MD) and two senior executive directors (EDs).

Documents reviewed by Business Standard showed that PNB’s board, which includes a representative each of the government and the Reserve Bank of India, accepted a proposal to increase the cost of cars being purchased by the MD and chief executive officer (CEO) and EDs for their use. The ceiling on the cost of a single car was increased from Rs 15 lakh to Rs 35 lakh for the MD and CEO, and from Rs 12 lakh to Rs 30 lakh for EDs, exclusive of applicable taxes. The board decision was taken before the amalgamation of Oriental Bank of Commerce and United Bank of India with PNB.

The decision was approved in March, days before the government enforced the lockdown to contain the spread of Covid-19, which has had a severe impact on the finances of companies. PNB MD and CEO SS Mallikarjuna Rao wasn't available for comments immediately.

In its latest communiqué, the government has asked banks to review the “composition of the existing fleet of vehicles engaged on hire, while taking into account functional imperatives and the profitability and the cost-to-income ratio of the bank’s operations”, along with he occupancy level of its guest houses.

Further, banks will have to defer the “revision of entitlements to fix assets like vehicles and furniture” and “lease or rental amounts admissible for hired residential accommodation.”

PSBs need to reduce costs related to entertainment, publicity, travel by 20 per cent annually, “by adopting digital means of communication and making effective use of locally available administrative officers” and on organising meetings.

A copy of the government’s advisory has been sent to PSBs' government nominee directors.

Sources had told PTI that PNB's purchases were a “part of routine replacement and the unutilised budget of last year was carried forward for the purchase”. The secretaries in the Union government use Maruti Suzuki Ciaz, which is cheaper.