The Hindu : National : Managerial autonomy for public sector banks

Online edition of India's National Newspaper
Wednesday, Feb 23, 2005

National

National

Managerial autonomy for public sector banks

By Our Special Correspondent

NEW DELHI, FEB. 22. In a significant step in banking reforms, the Centre on Tuesday granted full managerial autonomy to public sector banks (PSBs). It demarcated the roles of the Government as owners, the Board of Directors of the banks and the executive management to separate the rights of the owners from the functional freedom of the management.

The relaxation, enshrined in the United Progressive Alliance Government's Common Minimum Programme and coming just six days ahead of the new budget, is aimed at enabling the PSBs to have greater operational flexibility to transact business more efficiently.

This will enable them to compete more effectively with the private sector banks and function on "sound principles of corporate governance."

Henceforth, the PSB boards will enjoy the freedom to carry out their functions efficiently, subject to the statutory requirements, Government policy prescription and the regulatory guidelines issued by the Reserve Bank of India from time to time.

Under the existing norms, the banks are required to follow the Government guidelines even on managerial and routine administrative issues. This, according to a Finance Ministry statement, is now being replaced by a framework, under which all such issues are driven by policy prescriptions of the bank boards, along lines comparable with their global counterparts.

The PSBs will be allowed the freedom to pursue new lines of business as part of their overall business strategy.

They will also be permitted to make suitable acquisitions of companies or businesses. This includes both closure and/or merger of unviable branches, opening overseas offices, setting up subsidiaries as also exiting a particular line of business.

Human resource issues

The PSB boards will also be at liberty to decide on all human resource issues relating to the bank, including staffing pattern, recruitment, placement, transfer, training, promotions and pensions.

They will also be allowed to prescribe standards for categorisation of branches based on the volume of business and other factors and fix norms for essential academic qualifications, minimum qualification standards and modalities of promotion/recruitment.

The boards will also be free to visits foreign countries to interact with investors, depositors and other stakeholders as well as lay down a policy of accountability and responsibility of bank officials.

Additional autonomy

The Board of Directors of the stronger PSBs, with a capital adequacy ratio of nine per cent or more, net non-productive assets of less than four per cent, net profits over the last three years and minimum owned funds of Rs. 300 crores, will have additional autonomy to frame their own HR policies and procedures for recruitment, create additional posts of general managers, sanction differential pay linked to performance within the pay scales decided after negotiations, and decide the contribution to the staff welfare fund. All the PSBs will now function as if they were board-managed companies.

The liberalisation comes close on the heels of the Government's decision to allow the PSBs to enter the market to raise fresh capital for meeting the Base II requirements, and thereby dilute the Centre's stake to the minimum majority level of 51 per cent.

Printer friendly page
Send this article to Friends by E-Mail

National