PremiumAs part of the strategy, banks have been asked to capture emerging economic and technological business trends to drive business growth and build specialized capabilities and competitive advantage
Listen to this article |
NEW DELHI : The finance ministry has asked state-run banks to draw up a three-year road map to prepare themselves for upcoming challenges and stay ahead of private rivals in this intensely competitive sector.
As part of the strategy, banks have been asked to capture emerging economic and technological business trends to drive business growth and build specialized capabilities and competitive advantage.
This new round of banking reforms will seek to build upon a lengthy clean-up of the lenders’ balance sheets and a reduction in bad loans.
According to people aware of the development, each state-run lender would be given targets for business growth in specific markets, infrastructure finance and business sector opportunities. These targets would be continuously monitored to see that all objectives set at the beginning of a year proceed as planned.
The banks have been asked to set up a team of dedicated individuals in-house as well as external experts, including specialized institutions. This team will work with all banks, including guiding laggard banks to enable them to achieve their goals, the people said.
Along with dedicated internal groups in banks, the team will also identify strategic opportunities for each bank and the major challenges in pursuing such opportunities and regulatory constraints faced by the banks.
They will also identify targets to be achieved by each bank over three years and find areas and opportunities for banks to develop internal capabilities to continuously evaluate and prioritize upcoming business opportunities.
Queries emailed to the finance ministry and secretary, financial services, remained unanswered till press time on Friday evening.
This new round of banking reforms aims to ensure that progress made by the state-run lenders to correct their books over the past few years is sustained and they become more professional in handling their operations hereon.
The reforms were also discussed at PSB Manthan held late last month. The Manthan event identified opportunities for banks to cater to the funding needs of economic corridors, aspirational districts, MSME clusters, PM Gati Shakti programme, green energy, defence, exports, e-commerce companies as borrowers, and government’s digital initiatives such as the e-Marketplace and Ayushman Bharat Digital Mission.
Over the past several decades, state-run banks have played a pivotal role in transforming the Indian economy and powering its growth story, but the first half of the last decade has been quite challenging for these banks, characterized by issues such as an excessive build-up of stressed loans, deep-rooted HR issues resulting in lack of customer-centricity, etc. These issues also left a deep and pronounced impact on bank financials.
To counter this, in addition to the unprecedented recapitalization of PSBs, the government initiated a series of comprehensive reforms. On the governance side, several initiatives were undertaken, such as arm’s length selection of top managers through the Banks Board Bureau, performance-based extensions to managing directors and executive directors (EDs), increased strength of EDs and the introduction of the chief general manager role in larger banks. The government also embarked on an unprecedented consolidation exercise to leverage inter-bank synergies and scale benefits. As a result, the number of state-run banks was narrowed to a dozen from 27 in 2017.