PSB targets: Annual business target framework might loosen

The annual business target structure for public sector banks (PSBs) is set to be overhauled, with more focus on efficiency parameters.

Every year, government banks are asked for a Statement of Intent — business targets, asset quality improvement aims, farm loan target, etc. The structure is the same for all PSBs.

This year, banks could be formulating a business model according to their own strengths. Some might choose to focus on agricultural credit and others on loans to small and medium enterprises.

According to bankers, the focus will also be to increase the efficiency parameters and stressed asset management. Banks will not have to give targets for the return on assets and return on equity they want to achieve by the next financial year. In addition, they have to set targets for reducing bad loans, rising for three years.

PSBs, however, have reservations over objective targets and want these linked to those of the previous year. “If my bank is having five per cent of gross non-performing assets, we cannot reduce it to three per cent in one year,” said a senior official from a mid-size PSB.

Introduction of the efficiency parameters in the target structure is also in line with the government thinking to infuse capital based on efficiency. It had allocated Rs 6,990 crore for capital infusion in nine PSBs in the past financial year. Two measures were considered — the weighted average return on assets for all PSBs for three years (those scoring above average were considered) and return on equity in the past financial year.

RBI had indicated discomfort with the government’s strategy of infusing capital based on such parameters. “A targeted infusion of bank capital into scheduled public sector commercial banks, especially those that implement concerted strategies to clean up stressed assets, is also warranted so that adequate credit flows to the productive sectors as investment picks up,” it said last week.