FM, bankers meet on July 21

Finance Minister P Chidambaram will meet the chiefs of public sector banks on July 21 to take a closer look at the performance of the banking industry.

The agenda also includes key issues such as liquidity and interest rate scenario, agriculture credit, non-performing assets of the banks and recovery of sticky assets.

The meeting is also expected to discuss the performance-related bonus plans for PSB chiefs. The government finalised it early this week. The basis of the performance-linked bonus will be banks' ability to fulfil all commitments on the business plans that they sign with the North Block in the beginning of every year.

The maximum bonus a CEO can get will be Rs 10 lakh if all business parameters are achieved. In order to be eligible to get the bonus, a CEO must ensure that at least 60 per cent of the projections are achieved.

The minimum bonus is likely to be Rs 6 lakh. The cut-off year may be 05-06. If the government decides to implement the plan, some of the CEOs who have retired recently will be eligible to get performance linked bonuses.

The meeting assumes significance against the backdrop of major business ratios of public sector banks declining during the financial year ended March 2006. Return on assets (ROA), operating profit as percentage of working funds and net profit per employees declined in 2005-06 compared with 2004-05.

The ROA declined to 2.07 per cent from 2.27 per cent in 2004-05 as total assets of 25 banks rose 13.78 per cent in 2005-06, while operating profit rose 3.61 per cent. The net profit of 25 public sector banks increased by 14.3 per cent to Rs 17,382 crore (Rs 15, 204 crore).

On the agriculture credit front, the banks have done will achieving 125 per cent of the target fixed for flow of credit to agriculture sector during the year 2005-06.

At a meeting held on June 3 last year, it was announced that the target fixed for flow of credit to agriculture for the year 2005-06 for commercial banks was Rs 87,200 crore, based on the previous year 's disbursement.

Data collected from the commercial banks show that as on March 31, 2006, banks have disbursed Rs 1,07,900 crore.