The Mumbai-headquartered Union Bank of India has hit upon a novel idea for improving its financial performance in fiscal 2001-02.
Each of the bank's 44 regional offices has entered into a memorandum of understanding (MoU) with the bank headquarters agreeing to achieve pre-determined business milestones.
In other words, the regional offices have given an undertaking about their business performance to the bank management.
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The focus is on four key parameters: deposit mobilisation, extending quality credit as well as diversifying credit, bringing down non-performing assets and preventing fresh slippages, and meeting priority sector lending targets.
The bank expects each of the regional offices to act as strategic business units (SBUs).
To achieve this end, the heads of each of the regional offices negotiated with the management at the beginning of the financial year about the performance milestones they expect to meet in the current fiscal year. They will be held responsible for any gap between promise and performance.
The Reserve Bank of India had kicked off the process of signing MoUs with public sector banks in the early 1990s as a necessary precondition for the infusion of recapitalisation funds.
"In a way, Union Bank followed the same model. Barring profit, all key parameters have been covered by the MoU," said a source.
Union Bank has made business projections of a 16 per cent growth in deposits as well as advances in the current fiscal over the previous fiscal, its general manager, K V S Shyam Sunder, said.
These growth projections could see deposits grow from Rs 34,600 crore (as on March-end 2001) to Rs 40,000 crore while the bank's advances could go up from Rs 18,579 crore to over Rs 21,500 crore.
The bank's net profit in the year ended March 31, 2001 jumped by 54 per cent to Rs 155 crore, up from Rs 101 crore earned in the previous financial year.
The bank seems to have put its proposed initial public offer on the backburner. "The proposal has not been taken up by the board yet. Moreover, market conditions are not conducive enough at the moment... Once the stock market sentiment improves, getting board clearance will not be a problem," Sunder said.