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With performance of public sector banks (PSBs) coming under pressure in the last few years, the finance ministry on Friday said the time has come to rethink the strategy of public sector lenders.
Speaking at a two-day retreat of banks, organised by the ministry and aimed at kick-starting long-pending reforms of public sector banks, Hasmukh Adhia, secretary, financial services under the ministry, said, "Nobody can deny the need for banking reforms for economic development. There is a wide disparity in the performance of public sector and private sector banks. It is in this context we need to rethink the strategy of public sector banks."
Heads and executive directors of PSBs, finance ministry officials, Reserve Bank of India governor and deputy governors along with private sector heads are taking part in the meeting. Some of the issues that will be discussed during the retreat are consolidation and banking structure, financial inclusion, asset quality and recovery, technology, human resources, and priority sector lending.
Six sub groups have been formed to deliberate on this issues and then a reform blueprint will be prepared, which will be presented to the prime minister who will attend the concluding session on Saturday.
On consolidation, Adhia said the scope of this particular subject is not only mergers and acquisitions but examining ways in which capital could be raised effectively. "We will see if there is another structure by which we can raise capital, improve balance sheets, etc," said Adhia.
Adhia also added there have been several committees set up in the past to resolve the issues that are plaguing the banking sector but so far no actionable plan has emerged.
This retreat will discuss the sharing of best practices between private banks and PSBs.
Improving asset quality is another key concern for PSBs. According to RBI data, gross non-performing assets (NPAs) in the banking system rose to 4.5 per cent of gross advances in September 2014, against 4.1 per cent in March. During the same period, total stressed assets in banks (gross NPAs + restructured advances) rose from 10 per cent to 10.7 per cent.
Another pressing issue for PSBs has also been people management and that is also going to be discussed in one of the sessions. "Human resources reforms in PSBs need to be discussed. We need to understand the importance of people. There are issues such as recruitment, training and motivation that will be discussed," said Adhia.
Rethinking of priority sector lending (PSL) will be another key area that the conclave is going to be focusing on. Banks have been asking to expand the definition of what falls in the PSL norms and that the lenders should be allowed to play up on their strengths.
"Soon after nationalisation in 1972, 40 per cent target was given and it remains the same. We have not been able to rethink on the figure, either to increase it or decrease it. There is surely a need for making some changes in the PSL, which the regulator has given. We would like to generate ideas on what could be the priority sector prescription for the banks in view of the present state of the economy. Now, economy has had major shifts from 1969 till and we are into a different era. For example, food processing would be very important for agri growth, but doesn't feature on the PSL items," said Adhia.
