In­dia's public sec­tor banks seek out hand­picked tal­ent

The Pak Banker - - COMPANIES/BOSS -

In­dia has named pri­vate sec­tor man­agers, in­clud­ing for­mer se­nior ex­ec­u­tives at Mi­crosoft and Cit­i­group, to over­see re­forms of some of the state-con­trolled banks that dom­i­nate the coun­try's fi­nan­cial sec­tor.

Ravi Venkatesan, a 51-year-old di­rec­tor of in­for­ma­tion tech­nol­ogy group In­fosys and for­mer chair­man of both Mi­crosoft and Cum­mins in In­dia, was named chair­man of Bank of Baroda on Fri­day. Baroda's new chief ex­ec­u­tive is P.S. Jayaku­mar, who pre­vi­ously worked at Citi and has been man­ag­ing di­rec­tor of house-builder Value and Bud­get Hous­ing Corp. Un­veil­ing de­tails of how In­dia's state banks would be re­cap­i­talised and en­cour­aged to im­prove their ef­fi­ciency af­ter years of ris­ing bad loans, fi­nance min­istry of­fi­cials also raised the pos­si­bil­ity of bring­ing pri­vate sec­tor bankers into the mid­dle ranks of public sec­tor banks hitherto run by bu­reau­crats.

"In the last few years, they [public sec­tor banks] have faced a chal­leng­ing sit­u­a­tion," Fi­nance Min­is­ter Arun Jait­ley said. "Even though a chal­leng­ing sit­u­a­tion did ex­ist, there's no cause for panic at all."

State banks have dom­i­nated In­dian fi­nance since lenders were na­tion­alised un­der Prime Min­is­ter Indira Gandhi in the 1960s, and they now con­trol 70 per cent of as­sets. But they have in sev­eral cases been poorly man­aged and plagued by cor­rup­tion.

Their bad and "re­struc­tured" loans (cred­its rolled over for bor­row­ers) have to­gether now reached 14 per cent of their as­sets af­ter heavy ex­po­sure to the trou­bled sec­tors of steel, power, elec­tric­ity dis­tri­bu­tion, roads, tex­tiles and sugar.

Af­ter months of con­sul­ta­tion with the banks led by Jayant Sinha, Jait­ley's deputy, the gov­ern­ment of Naren­dra Modi, the prime min­is­ter, has an­nounced a se­ries of re­forms and a scheme to re­cap­i­talise the state banks with Rs700 bil­lion (Dh39.5 bil- lion) over the next four years. The money will be in­jected each year in tranches, with the aim of re­ward­ing suc­cess­ful banks and forc­ing the oth­ers even­tu­ally to shrink their mar­ket share. In the cur­rent fi­nan­cial year for ex­am­ple, 40 per cent of the Rs250 bil­lion to be al­lo­cated will be shared among banks to en­sure all reach the re­quired cap­i­tal ad­e­quacy ra­tio of 7.5 per cent of as­sets in ac­cor­dance with Basel III norms; a fur­ther 40 per cent goes to the six big­gest state banks vi­tal to the econ­omy, in­clud­ing State Bank of In­dia and Bank of Baroda; and the re­main­ing 20 per cent will be dis­trib­uted based on each bank's per­for­mance.

In a fur­ther sign of the gov­ern­ment's at­tempts to make state banks more com­pet­i­tive with pri­vate sec­tor ri­vals, they will be hence­forth be judged on "key per­for­mance in­di­ca­tors", in­clud­ing quan­ti­ta­tive tar­gets such as re­turn on eq­uity and the pro­por­tion of fee-based in­come and sub­jec­tive ones such as the level of skill de­vel­op­ment.

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