| Finance minister P. Chidambaram in New Delhi on Wednesday. (PTI)
New Delhi, June 15: The government is drawing up a blue-print to give state-run banks greater autonomy.
Finance minister P. Chidambaram has asked bank chiefs to suggest changes by the month-end that will give them greater autonomy.
North Block will also incorporate the views of the Indian Banks’ Association and place the final blueprint before the cabinet for approval.
Senior finance ministry officials said the government was working on a new autonomy plan that would give successful bank chiefs the right to take decisions on branch closures without referring to North Block.
Bankers would also have the power to reward their managers with monetary rewards, perks and quick promotions to improve their levels of efficiency.
Recruitment from the open market at all levels is also on the cards. Banks will also have the right to decide on the timing of voluntary retirement offers for staff who are declared surplus. However, the VRS is expected to be uniform across all banks.
The power to shut down branches is considered vital for the consolidation that Chidambaram is planning for state-run banks. State Bank of India, for example, is likely to merge its associate banks with itself. Officials say branches of these banks have been functioning as rivals in most cities and will have to be amalgamated.
While bankers have limited autonomy in human resource matters, officials said “greater autonomy was needed to compete on a level playing field with global banks entering this country.”
Officials said 20 out of the 27 state-run banks could be given greater autonomy. But seven others may have to be kept under watch.
Chidambaram will talk to Punjab and Sind Bank and Dena Bank on ways to improve their efficiency, while five others, considered borderline cases, have been asked to submit written plans on how to improve their functioning.
The government will balance the need for autonomy with demands for greater accountability. Bank chiefs will be expected to sign agreements with the government to improve their functioning under certain parameters, which will include NPA and capital adequacy levels, loans to key sectors like agriculture and SMEs and the ability to turn into multi-task banks or financial retailers capable of selling insurance and non-bank credit products, besides their normal banking credit.
Banks have to cut non-performing assets from an average of 3 per cent to 2 per cent this financial year and disburse about Rs 1,41,000 crore in farm credit against Rs 1,15,000 crore last year.
Officials said all banks will have to sign MoUs with the government, the principal shareholder in state-run banks, by June 30. Besides, monitoring through the MoU mechanism, the finance minister will visit the headquarters of all state-run banks over the year to review their functioning.