Government offers autonomy package for PSU banks

Our Economy Bureau
23 February 2005

New Delhi: The ministry of finance yesterday offered an autonomy package for public sector (PSU) banks aimed at creating a level-playing field vis-à-vis their private sector counterparts.

The government has allowed PSU banks the freedom to decide on human resource issues. The package also permits PSU banks to undertake acquisitions of companies or business, close or merge unviable branches, open overseas offices, set up subsidiaries, take up a new line of business or exit an existing business - all without the need to seek prior government approval.

"We want public sector banks to be more market driven. They should compete on a level playing field with private banks and foreign banks," the joint secretary, banking, ministry of finance, Amitabh Verma, said while talking to reporters.

He, however, clarified that the freedom to the board of directors to open new lines of business and to acquire companies has to be exercised within the permitted lines of businesses under the Banking Regulation Act.

While a certain degree of autonomy would be common to all banks, a higher degree of freedom would be permitted for `stronger'' banks that have made a net profit for the past three years, have capital adequacy of 9 per cent or more, net non-performing assets (NPAs) of less than 4 per cent and minimum owned funds of Rs300 crore.

The boards of stronger banks would have the additional freedom of having differential pay structures, framing human resources policies and procedures for recruitment, including eligibility criteria, mode of selection and level of entry and creation of additional posts of general managers.