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7-Point Action Plan 'Indradhanush' for Public Sector Banks
Aug 19, 2015

In an effort to breathe new life into public sector banks, the government has announced a 7-pronged strategy, called Indradhanush, to tackle challenges in the sector. Among other things it will involve appointing private sector professionals to lead these institutions, recapitalising the banks and destressing them. 

This strategy is touted as the most comprehensive reform since Indira Gandhi nationalised private banks in 1970. 

To help banks tackle bad debts, the Centre has come out with a de-stressing plan. 5 sectors: steel, power, highways, power distribution utilities and sugar (to an extent) are responsible for most bad debts. 

Bank Board Bureau

  • As a first step towards setting up a bank holding company, the government has announced the setting up of a Bank Board Bureau (BBB) that will be operational from April 1, 2016. 

  • The Bureau will replace the Appointment Board of Banks. 

  • The Bureau will engage with the boards of various banks to formulate appropriate strategies for their growth and development. 

  • It is an interim arrangement towards setting up a bank holding company. Government holdings in PSBs will be transferred into this. 

  • Subsequently, the company will raise money to provide additional capital to banks. 

  • The Bureau will take over supervisory activities. 

  • There will be no conflict with the Reserve Bank of India as the proposed structure will take over only the government’s role as principal shareholder. 

  • There will be greater flexibility in hiring, but the banks will not be able to go for direct campus placements from IITs or IIMs due to legal hurdles. They will be empowered to make middle-level appointments. 

  • There will also be a new framework of key performance indicators. These indicators will include efficiency of capital use, diversification of business, NPA management and financial inclusion. 

  • A higher index will lead to a higher performance bonus for MDs & CEOs. 

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