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Align pay in PSBs to that in CPSEs: BBB

The Bank Board Bureau (BBB) has recommended that Government should bring in reforms in the compensation process in public sector banks (PSBs) on the lines of Central Public Sector Enterprises (CPSEs).

BBB has suggested compensation reforms in PSBs so that best practices can be introduced ‘on the lines already prevalent in CPSEs.

It will play important role in attracting high-quality talent for non-executive directors and chairmen.  It will also maintain a level-playing field with the private sector with respect to role, responsibility and remuneration.

About Bank Board Bureau (BBB)
  • BBB is the super authority (autonomous body) of eminent professionals and officials for public sector banks (PSBs). It had replaced the Appointments Board of Government.
  • It is set up in April 2016 as part of seven point Indradhanush Mission to revamp the Public Sector Banks (PSBs).
  • Functions: Give recommendations to Government for appointment of full-time Directors as well as non-Executive Chairman of PSBs.
  • Give advice to PSBs in developing strategies for raising funds through innovative financial methods and instruments to deal with stressed assets.
  • Guide banks on mergers and consolidations and also ways to address the bad loans problem and among other issues.
  • Composition of BBB: It has three ex-officio members and three expert members, in addition to the Chairman. Former Comptroller and Auditor General (CAG) Vinod Rai is first and incumbent Chairman of BBB.

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Union Cabinet approves merger of SBI, 5 associate banks

The Union Cabinet chaired by the Prime Minister Narendra Modi has approved the merger of State Bank of India (SBI) with five of its associate/subsidiary banks.

These five subsidiary banks are State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore.

The Union Cabinet also approved the introduction of a Bill in Parliament to repeal the State Bank of India (Subsidiary Banks) Act, 1959 and the State Bank of Hyderabad Act, 1956. 

Key Facts
  • The acquisition under Section 35 of the SBI Act, 1955 will result in the creation of a stronger merged entity. It will minimize vulnerability faced by subsidiary banks to any geographic concentration risks.
  • It will improve operational efficiency and economies of scale resulting into in improved risk management and unified treasury operations. Existing customers of associate banks will benefit from SBI’s global network.
  • The merger will lead to better management of high value credit exposures through focused monitoring and control over cash flows rather than separate monitoring by six different banks.
  • The merger will also result in recurring savings, estimated at more than Rs. 1,000 crore in first year, because of reduced cost of funds and enhanced operational efficiency.
Comment

The acquisition of subsidiary banks of SBI is considered an important step towards strengthening the banking sector through consolidation of public sector banks (PSBs). It is in pursuance of the Indradhanush action plan of the Central Government. In 2015, SBI was ranked 52 in the world in terms of assets, however the merger will allow its entry un top 50. The merger does not include Bharatiya Mahila Bank (BMB) and its proposal is still under consideration.

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Gross NPAs of PSBs touch over 6 lakh crores in July-September 2016

The Union Government has announced that the gross non-performing assets (NPAs) of the Public sector banks (PSBs) have touched around 66 lakh 40 thousand in the three months period from July to September 2016.

As on September 30, 2016 gross NPAs of the PSBs in the country rose to  Rs. 6,30,323 crore as against Rs. 5,50,346 crore by end of June 2016. It shows increase of Rs. 79,977 crore NPAs on quarter on quarter basis during this period.

Steps taken by Government

The incidence of NPAs is high in sectors like infrastructure, power, road textiles, steel etc. So, the Union Government has taken sector specific measures to tackle the menace of NPAs. These measures aim at improving resolution or recovery of bank loans.  They are enactment of Insolvency and Bankruptcy code, 2016 followed by amendment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) and Recovery of Debt due to Banks and Financial Institutions (RDDBFI), Act. In addition, six new Debt Recovery Tribunals (DRTs) have been established.

What are Non-Performing Assets (NPA’s)?

  • NPAs are loans made by a bank or finance company on which repayments or interest payments are not being made on time.
  • Thus, NPAs are any asset of a bank which is not producing any income and are also called non-performing loans.
  • The loan is considered to be a NPA once the borrower fails to make interest or principal payments for 90 days.
  • In case of Agriculture/Farm Loans, the NPA varies for of Short duration crop loan (interest not paid for 2 crop seasons), Long Duration Crops (interest not paid for 1 Crop season).

What are negative effects of NPAs?

Large number of NPAs affects the profitability & liquidity of the banks. It adversely affects the value of bank in terms of market credit and widens assets and liability mismatch. It results in inflating the cost of capital for economic activities and banks may charge higher interest rates on some products to compensate NPAs.

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