Different Performance Norms for PSB: Rationale

Different Performance Norms for PSB: Rationale

Question: Private sector banks are based on profits while PSBs have a social service orientation. On account of this, the norms for the two should differ as far as performance assessment is concerned. Elaborate.

- Private banks are profit oriented while PSBs are socially oriented

- PSBs have been assessed on account of stressed assets such as NPAs

- The performance of PSBs have to be critically assessed and factors that have been implicated in this include stressed assets, especially when tax payers have offered resources for recapitalisation

- Sectoral analysis has made it clear that performance of PSBs should be critically measured and evaluated

- Latest available data for December 2014 from RBI shows that the industry persists in recording highly stressed assets at 17.9% of advances closely followed by services at 7.5%

- Retail sector where private banks have a dominant share recorded the lowest stressed assets at 2%

- Sub sectoral analysis shows that mining, textiles, iron and steel, aviation and infrastructure are the main contributors to stressed assets followed by food processing, engineering, wood, paper, glass and glassware as well as construction.

- Economic slowdown is impacting different sectors of the Indian economy. Careful analysis reveals that PSBs account for majority share of stressed assets in iron and steel, aviation, textiles, infrastructure and mining.

- This is different from private sector banks due to large exposure to these sub sectors. PSBs constitute 17.6% of advanced to infrastructure as against 8.4% of private sector banks. The ratio of stressed assets was 30.9 to 18.2 percent. The same results are obtained when comparison is extended to remaining stressed sectors

- When intricately analysed, performance of PSBs is not inferior to private sector banks

- Sub sectors require large amount of resources which can only be supplied by PSBs

- Major areas of stressed assets are those where policy paralysis and episodes of stalled projects predominate namely mining and infrastructure

- Slow demand in Western economies and falling competitiveness against China and Bangladesh has led to loan restructuring by the textile industry.

- Dumping of steel in India by China has emerged as an issue and survival of domestic manufacturers with implications of employment is the most important factor in continuation of financing of the steel sector

- PSBs have provided support and partnership to GoI since the meltdown

- India has weathered higher ratio of stressed assets during the period of reforms in 1993-1994 and ratio of 13 percent in 2001

- Current critical situation will be used for introspection and taking on structurally corrective measures

- Issues raised by the Nayak Committee Report including chairman tenure, duration of bank boards and overarching bank investment firms require that top PSB posts should not be left vacant

- Following the Gopalkrishna Committee Report, around 8 lakh PSB officials are skilled through high quality training to ensure efficient operations

- GoI’s proposal to enable senior officials from PRBs to chair PSBs can yield a positive outcome and should be tried

- Efficient officials in the public sector always find opportunities in the private sector

- Moreover, proposed capitalisation of PSBs should not be part of routine but should be made conditional associated with stringent performance criteria

- Specific roadmap for recovery needs to be placed in the public domain to ensure transparency and accountability

- Following nationalisation of the State Bank of India in 1955, 1969 and 1980, public sector banks have always had the social mission of providing banking services for the unbanked

- PSBs are at the forefront of rural areas and have been implementing government welfare schemes for the purpose of priority sector lending, pension and insurance

- PSBs pursuing social objectives are competing well on numerous financial parameters with PRBs

- Authorities need to consider this when level playing field is not possible between the public and the private sector

- Owners and regulators should also take cognisance of the fact that opening close to 16.5 crore bank accounts in 6 months without extra manpower is hard

- Private banks opened 68 lakh Jan Dan Accounts in contrast; differential performance metrics are therefore needed for the public and private sector

- Norms and benchmarks for unique financial bodies typical to the nation have to be designed especially for public sector banks and comparison and contrasts of performance evaluated among themselves

- Comparison of socially oriented PSBs with profit centred private sector banks is skewed

- Acceptability of transparency in operations should offer benchmarks for time and tested PSBs; fledgling public sector organisations should be given time to grow and develop in a manner that promotes accountability

Facts and Stats

- Under the PM 15 Point New Programme, 15% of PSL should constitute minority community lending for public sector banks

PSL comes under the following broad categories :

(i) Agriculture
(ii) Micro and Small Enterprises
(iii) Education
(iv) Housing
(v) Export Credit
(vi) Others

- Total PSL on quarter ending 31st December 2014 equalled INR 1625758.33

- Share of MCL in PSL equals 260412.26 or 16.02%