Finmin mulls managerial autonomy for state-run banks

Public sector banks (PSBs) which have been clamouring for a level playing field would take heart from this piece of information: Finance minister P Chidambaram is expected to unveil in the forthcoming Budget a managerial autonomy package for PSBs. Initially, the ministry is planning to grant managerial autonomy to strong banks.

The managerial framework will be so designed that the government will be allowed to exercise its ownership rights without transgressing into the management functions of the PSBs.

The ministry has stressed that it is keen on settling corporate governance issues and ensuring board level appointments are "fit and proper".

To address corporate governance issues in PSBs the government and Reserve Bank of India (RBI) are working towards drawing up a talent pool of about 300 to 350 people for appointment as independent directors on boards of PSBs.

As a part of the package, the government is planning to ensure a three to five year term for chairman and managing directors (CMDs) and executive directors (EDs).

In addition to this the finance ministry in consultation with the central bank is expected to permit banks to pursue new lines of business as part of their overall business strategy.

Bank boards will also be empowered to make suitable acquisitions of companies in the private sector, closing or merging all unviable branches, opening of overseas offices, setting subsidiaries, exiting line of business and categorisation of branches based on volume of business and other factors, said banking sources.

Bank boards would also be authorised to decide on all human resource issues relating to the banks , including the staffing pattern, recruitment, placement, transfer, training and promotions.

The board would be free to adopt differential pay structures within a certain range of pay. This will enable the bank attract talented individuals in various operational areas like marketing, information technology, risk management and credit, said a ministry source.

A detailed proposal on HR issues is being worked by Indian Bank's Association (IBA). The ministry has urged the IBA to suggest a upper ceiling for contribution to the staff welfare fund.

At present, the guideline prescribes a uniform contribution of 3 per cent of the banks net profit or maximum of Rs 10 crores to the staff welfare fund irrespective of the size of the bank, number of employees and level of performance.