Banks to sign MoUs with government

Finance minister P Chidambaram is expected to discuss a proposal putting in place a system of memorandums of understanding to be signed between individual banks and the banking division of the finance ministry, similar to MoUs signed between PSUs and the ministries under whose jurisdiction they operate
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This would oblige banks to meet the business targets set by them at the beginning of each year.

Accordingly, banks would have to set their own profit and business growth targets based on their performance of the preceding year that would oblige them to meet targets on the quality of assets and reduction of non-performing assets.

The performance of the banks, based on performance parameters would be reviewed biannually with the respective bank chiefs being held accountable for meeting targets.

While framing the autonomy guidelines for nationalised banks earlier this year, the government, being the largest shareholder, had retained the right to appoint bank chairmen and other top management, apart from the right to monitor performance.

Chidambaram will also discuss the need for consolidation and the steps taken by banks in this direction during his meeting with bank chiefs on Friday. He is also slated to discuss ways to bring about convergence in the financial sector with banks entering other businesses like insurance and mutual funds.