The Centre on Saturday came down heavily on public sector banks for projecting stagnation or drop in deposit mobilisation, credit targets and profits for 2005-06, a fiscal expected to show high growth, and said such targets were not acceptable.
"Public sector banks have been consistently outperformed by the new private sector banks in deposit mobilisation. Some of the frontline public sector banks have projected a deposit growth in 2005-06 which is lower than that of 2004-05," Union Finance Minister P Chidambaran said in Mumbai.
Some of the public sector banks have projected deceleration in advances as well, Chidambaram said, speaking at the Indian Banks' Association annual general meeting.
"If the rate of growth of the economy in 2005-06 is maintained at 7 per cent, it is difficult to understand how business projections by public sector banks, especially deposits and advances, can experience deceleration in growth," the finance minister said.
Stating that management of non-performing assets remained the foremost challenge for banks and for PSBs, he said: "We will keep a close watch on the manner in which NPA reduction is taking place and insist that cash recoveries should more than offset the fresh write-offs in the NPAs," he said.
Lamenting the projections for profitability in statement of intents for FY-06, Chidambaram said Indian banking sector is not known for offering very good returns on capital. Their returns on assets stood at 0.7 per cent as against 1.2 per cent for Singapore and 1.6 per cent for Brazil.
Chidamabaram said in 2004-05, the fall in treasury income would have exerted pressure on the profitability parameters. Therefore, one ought to see the profitability and efficiency bouncing back in the current fiscal.
However, the statements by banks does not hold out hope on this count, with the stagnation or decline projected in the profitability parameters for most public sector banks, the finance minister said.
Bank credit has to grow with the needs of the economy and deposits have also to be shored up with aggressive mobilisation strategies, he said.
"How can the perception of the bankers be so different from that of the rest of the economy? This perception has to be remedied," he said.
On the need for banks to raise fresh capital, he said such banks, where the government holding has reached the minimum limit of 51 per cent, would have to identify new forms of infusion of funds to strengthen their capital base.
He said the banking sector may witness a net depletion of two per cent in capital adequacy after the adoption of Basel-II norms. This would entail raising of fresh capital as well as optimal use of existing capital, he added.
Referring to the autonomy to the public sector banks, Chidambaram said the government would monitor their performance through the Statement of Intent which have been drawn up by the bank managements.
"The Statement of Intent is limited to the aspects related to growth and profitability parameters, performance in respect of national priorities and credit management," he added.
Chidambaram said measures have already been announced to grant complete managerial autonomy to these banks in keeping with the clearly delineated ownership role.
The government is examining further areas of improvement identified by the IBA such as remuneration package for retaining the top management, delegation of powers to the respective board for appointing statutory central auditors and doing away with the jurisdiction of CBI/CVC over the officers of the public sector banks.
The transparency and disclosure standards are important constituents of a sound corporate governance mechanism aligned with international best practices, he said.