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No more diktats from FinMin to banks: FM

P Chidambaram makes it clear that any advisory, if required, would be sent only after his approval

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State-run lenders may no longer get advisories from the on how to run their operations. Finance Minister on Saturday made it clear that the government would not unnecessarily interfere in the day-to-day affairs of the banks, and any advisory, if at all required, would be sent only after his approval.

The assurance from the finance minister came at a meeting with chiefs of public sector banks today. This has brought relief to some bankers who often expressed their displeasure, though not officially, over the frequent instructions from the finance ministry.

Chairman of a bank who attended the meeting, said Chidambaram highlighted that the government, being the majority shareholder in the banks, would like to give suggestions at times, but it also wanted to give a free hand to the banks in running their operations.

  • Hold one board meeting every quarter to discuss major policy and strategic issues
  • Cap bulk deposits at 10% and certificate of deposits at 5% of total deposits
  • Quickly relook at all lending rates in light of reduction in CRR and repo rate
  • Make board approval for short-term unsecured mandatory
  • Enter into a joint lending agreement for corporate loans over Rs  150 crore
  • Don’t increase in order to provide some relief to the borrowers

Another banker said though most of the instructions from the finance ministry were in the interest of the banks and were aimed at improving their efficiency, the generalised approach did not suit all banks. “(But) the goals and client base of each bank is different, and you can’t go with a one-size-fits-all approach,” he said.

In the recent past, the finance ministry, headed by Pranab Mukherjee, had sent many advisories to public sector banks on issues such as agenda of board meetings, putting a cap on bulk deposits, reviewing interest rates, mandatory board approval for short-term unsecured corporate loans, joint lending for corporate loans or raising EMI tenure instead of the amount.

Though no major advisory has gone to the banks from the finance ministry since August 1 when Chidambaram took charge, some of the issues highlighted by him in on Saturday’s meeting were in line with the instructions sent by Financial Services Secretary DK Mittal.

The finance minister is learnt to have asked the banks to lower their cost of funds by shedding bulk deposits. He also asked the lenders to cut EMIs on loans for consumer durable goods.

Last month, Governor had said there were concerns over the government exercising its ownership rights not through the established channel of the board, which was not a good example of good corporate governance.

Finance ministry officials always defended the move saying the government was just giving its suggestions as the owner of the banks, and it was for the banks to take a call on those issues in their board meetings.

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