In March, the centre had asked weak public sector banks to come up with turnaround plans by setting stiff targets for improving asset quality, bad loan recovery, cost control, capital utilization, etc. Photo: Mint
Mumbai: The All India Bank Employees’ Association (AIBEA) has questioned the purpose of a turnaround plan for 10 weak public sector banks (PSBs) identified by the government for further capitalization.
In an internal communication, the umbrella association has directed its member unions to quiz bank managements about the futility of a three-year strategy to turn around these ailing banks, when the government and Reserve Bank of India are contemplating the merger of state-owned banks.
In March, the government had asked weak PSBs to come up with turnaround plans by setting stiff targets for improving asset quality, bad loan recovery, cost control, capital utilization etc.
The plan was to be worked out by SBI Caps, based on which a tripartite agreement between the government, bank management and employees would be signed.
“It is noted that the MoU covers turnaround strategy to be adopted for the next three years up to March 2020,” wrote C.H. Venkatachalam, general secretary, AIBEA, in his letter to member unions.
“At the same time, there are reports and statements in the media from various authorities including Hon finance minister and RBI officials that steps are afoot to consolidate and merge the banks and very soon decision will be taken. In that case, this MoU and the strategies under this MoU become meaningless and irrelevant as the same cannot be implemented with commitment,” he added.
Therefore, AIBEA has sought clarity from the management on the purpose of the MoU and what is being contemplated.
Mint has reviewed a copy of the letter addressed to union members in 11 banks including Allahabad Bank, Andhra Bank, Bank of India, Bank of Maharashtra, Central Bank of India, Dena Bank, Indian Overseas Bank, IDBI Bank Ltd, Uco Bank, Union Bank of India, United Bank of India, Among these, Union Bank is not part of the list identified by the government for turnaround.
Separately, RBI has also invoked prompt corrective action (PCA) on a few banks including IDBI Bank, Dena Bank, Central Bank of India and Bank of Maharashtra because of the rising bad loans and negative return on assets.
Under PCA, banks are assessed on capital ratios, asset quality and profitability. Failure to meet any of the norms can trigger action such as limits on lending.
Delivering a lecture at Columbia University in April, RBI Governor Urjit Patel batted for consolidation of some PSBs to create fewer but healthier banks and resolve the problem of stressed assets. He suggested that banks should look at raising private capital instead of relying on government largesse.
Separately, finance minister Arun Jaitley on several occasions also said India needs to create 4-5 banks of global size and scale and further consolidation in the banking sector will be done at the appropriate time. The finance ministry has also sought help of the government think-tank Niti Aayog to work out a roadmap for consolidation of PSU banks.
“The government wants to improve the performance of the banks before it looks at divestment. The turnaround strategy will only help improve valuation of these banks,” said an executive director of a mid-sized bank.[“Source-livemint”]