Government Guideline On Performance Assessment of Bank

No More Bulk Deposit will be allowed at the cost of small depositors and small investors.


No More short term unsecured bulk loan to corporate will be allowed to achieve lending target


Focus on Profit, Recovery of dues from defaulters, Reduce NPA, Increase Financial Inclusion will be new priorities.


Staff Ratio in Branches of all banks have to be judicious. Focus on real Human Resource Development to reduce growing frustration among staff of public sector banks.


Banks have to try to increase Return on Asset, reduce to cost to  income ratio and increase per employee business and per employee profit.

No loan growth target for PSBs

Finance ministry asks banks to focus on non-performing assets, loss-making branches

Manojit Saha / Mumbai Jul 20, 2012, 00:15 IST Public sector banks will not have to focus on their top line growth, as there will be no targets for them to meet credit and deposit growth for the current financial year. Instead, the finance ministry has asked the government-owned banks to focus on increasing efficiency and bringing down non-performing assets. Banks will now have targets on lowering the number of loss-making branches and cutting bad loans of regional rural banks. At the beginning of every financial year, the government-owned banks indicate their targets to the finance ministry in statements of intent. The statements consist of parameters such as business growth, low-cost deposit growth, net NPAs, net profit, etc. Banks state their targets in each of the parameters in the financial year. Their performances are reviewed at the end of the financial year.  Now, the finance ministry wants banks to focus on increasing their profitability and improving the asset quality. As a result, some new parameters would come in. The finance ministry is holding meetings with each PSB bank chairman to finalise the targets. “The focus this time is on increasing the profitability,” said a PSB chairman and managing director. “We have to emphasise on parameters such as return on asset, net profit per employee, cost-to-income ratio, and staff ratio in branches, among others.” The ministry’s move to eliminate business-growth parameters comes on the back of banks scrambling for cash during quarter ends, which results in a sharp spike in interest rates. For example, in March, short-term rates went past 12 per cent while liquidity became tight, as banks rushed for funds to meet their yearly targets. Bankers said though loan and deposit growth targets are being removed, the target for growth in the current and savings account deposits — the low-cost deposits — has been retained. The ministry has been telling PSBs to raise their efficiency at a time when the government has shown commitment to adequately capitalise the lenders. Earlier, banks were asked not to start fresh ventures in non-core activities such as insurance and the asset management business, but to focus on core banking. Bankers, however, said the move to not have business growth targets might result in balance sheets becoming smaller. “With credit and deposit growth not picking up, some of the banks have already seen a contraction in the balance sheet size over the March figures,” said a senior banker. According to Reserve Bank of India data, banks’ credit registered just three per cent growth as on June end when compared with March end, while deposit growth was 5.4 per cent. Over a year, as on June 29, credit growth had fallen to 16.5 per cent from 20 per cent a year before. Deposit growth has slowed to 13.4 per cent from 18.5 per cent a year before. EFFICIENCY PARAMETERS                                        (2010-11) Public sector banks New private sector banks Foreign banks Number of banks 26 7 33 Business per employee (Rs lakh) 1,013.63 826.07 1,559.74 Profit per employee (Rs lakh) 5.93 8.93 27.59 Wage as % of total expenses 17.27 13.83 23.31 Return on assets 0.96 1.51 1.74 Net non-performing asset ratio 1.09 0.56 0.67 Source: RBI While a high interest rate has been cited as one reason for slowing in credit demand, high inflation has made the real return to depositors unattractive. http://www.business-standard.com/india/news/no-loan-growth-target-for-psbs/480936/ TUESDAY, MARCH 06, 2012 Performance Assessment of Banks http://dkjain497091112006.blogspot.in/2012/03/performance-assessment-of-banks.html After 43 years of bank’s nationalization and 21 years of adoption of policy of liberalization and reformation launched in the year 1991,our government and our learned Finance Minister has realized for the first time, the bad consequences of imposition of targets for deposit and advances on CMDs of banks. It is undoubtedly and undeniable true that due to unrealistic targets there used to be unbearable pressure from seniors on field functionaries for its achievement. And due to application of evil ways and means to reach nearer to target and due to unhealthy competitions among flatterer officers in reaching nearer to bosses, officials of banks during last three to four decades have in general lost a lot of its health, accumulated unimaginable volume of bad assets, created a gang of inefficient, non performers but cleaver, flatterer and corrupt workforce and eventually caused huge loss to the bank as also to its culture. To read more please click on following link http://dkjain497091112006.blogspot.in/2012/03/performance-assessment-of-banks.html Feature: New govt rules will weaken public sector banks Shishir Asthana/Mumbai 18 Jul 12 | 03:23 PM The valuation gap between public sector and private sector banks is expected to increase, if the government has its way. Recent news flow indicates a rift between the finance ministry and the Reserve Bank of India with public sector banks being at the receiving end. After opposing the government’s legislation of setting up a Debt Management Office (DMO), RBI Governor Duvvuri Subbarao has objected to the ministry issuing orders to public sector bank directly and bypassing the board. A Business Standard report says that the finance ministry has sent letters asking banks to increase loan tenure rather than instalment amount. The ministry has barred banks from entering into non-core activities like floating insurance or mutual fund joint ventures. The ministry has also asked banks to cap the share of bulk deposits as a percentage of total deposits. Except six large banks, other banks must form consortium to lend above Rs 150 crore. And the latest diktat by the ministry is asking banks not to fund unsecured loans. This move will help private sector players grow their business rapidly. A bank only lends money as an unsecured loan if it knows its client well and has a long relationship or if the client has a strong balance sheet with steady and visible cash flow. This move by the ministry will take away some of the best and strongest clients of a public sector bank. Normally when a corporate moves to a private sector bank for any kind of loan, the aggressive private sector player will offer a better deal for its existing loans with the public sector bank. In short, the client will be snatched away from the public sector bank in due course. Similarly the cap on bulk deposits makes little sense, especially at a time when deposit growth is slowing on account of lesser money in the hands of retail public due to high inflation. State Bank of India in its March 2012 results had announced that it would be concentrating on bulk deposits to increase its deposit base as it felt raising money through smaller investors was tough and costly. Most of the private sector banks have an insurance arm or a mutual fund through a joint venture or a subsidiary. If one looks at the financials of private sector banks, it is the fee collected from selling these products and other financial products as well as transaction fee that is driving growth. Normal banking operation can only earn limited profits or make losses in some cases, due to high operational costs. The ministry’s order of barring public sector banks to set up insurance or mutual fund joint ventures will only benefit the private sector players. Public sector banks, are asked to lend to sectors which private sector players avoid, such as power, infrastructure, textile, agriculture and airlines. This has caused a substantial deterioration in their books. Further, public sector banks are the first and in most cases, the only banks in rural India as part of social responsibility and RBI guidelines. Also, public sector banks are the only ones directly lending to farmers. Private sector banks meet their obligation of priority sector lending to agriculture sector by funding players involved in the agriculture business, like fertiliser and pesticide producers and distributors, farm equipment manufacturers among others. Rather than incentivising them, the ministry through its diktats is taking business away from them. As has been the case with various public sector companies, be it in pharmaceuticals, telecom, engineering, or airlines, it was government apathy towards the sector which was the main cause of their failure. Will public sector banks be the new target?