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PSU banks’ performance under finmin scanner

Incentives based on performance are likely to get thinner for public sector banks’ chairmen and executive directors as the finance ministry looks to keep the level of credit and deposit growth rate outside their performance measuring parameter.

india Updated: Apr 17, 2012 02:30 IST
Mahua Venkatesh

Incentives based on performance are likely to get thinner for public sector banks’ chairmen and executive directors as the finance ministry looks to keep the level of credit and deposit growth rate outside their performance measuring parameter.



Until now credit and deposit growth comprised an important indicator of measuring performances of the top managements driving the government banks. http://www.hindustantimes.com/Images/Popup/2012/4/17_04_12-buss25.jpg

An official source said that there has been a tendency by the top management of banks to push credit and deposit recklessly to meet targets forcefully especially in the January to March quarter, thereby impacting financial performances at a later stage.

Several banks’ chairmen, however, refused to comment on the issue.

Meanwhile, the finance ministry is going through the finances and performance of each public sector bank with a fine toothcomb especially after global rating agency Moody’s downgraded the Indian banking industry last month.

Financial services secretary DK Mittal has also been attending board meetings of public sector banks to assess and review the audit reports and overall performance, which includes the stated targets on several areas.

“The finance ministry is active in screening the performance of the government banks and apart from government-nominated board members, other senior officials have also been attending meetings to ensure that things are within control,” a chairman and managing director of a state-owned bank, who did not wish to be identified told Hindustan Times.

In October, global rating agency Moody’s had downgraded its outlook towards the country’s largest lender — the State Bank of India. The ratings firm blamed the pull-down to a shortage of capital in SBI to cushion bad loans or contingencies and “weakening asset quality” — implying loans that do not yield interest. Later the rating agency downgraded the outlook for the country’s banking industry from “stable” to “negative” saying that the quality of asset could deteriorate in the next 18 months due to rising interest rates.