Banks more free now, can link pay, output

But the most far-reaching reform is for strong PSU banks, which can now sanction differential pay linked to performance (‘within the pay scales decided after negotiations’), get more freedom in recruitment procedures, and the ability to create additional posts of general managers.

Strong banks have been defined as those with capital adequacy ratio of 9 per cent or more, with net NPAs of less than 4 per cent of net profits over the last three years, and with minimum owned funds of Rs 300 crore. Those that would make the grade include, among others, State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank and Indian Overseas Bank.

According to bankers, the flexibility on recruitment policies and fixing of pay scales is significant as it’s a step towards bank-specific wage agreements that will allow strong banks to pay better salaries to its staff than weak ones. This will help strong PSU banks compete with the private sector and foreign banks in attracting talent.

Banking stocks were in the limelight after the news hit the market. The BSE Bankex gained 59.69 points, or 1.60%, to end at 3,792.87, recovering from the day’s low of 3,718.43. State Bank of India (up 3.03% to Rs 680.75) firmed up on fresh buying interest.

Talking to The Indian Express, S C Gupta, CMD of IOB said, “This is a clear message to banks to be efficient and lean. To my mind, the most significant step is autonomy in HR policies, and it is a movement towards bank-specific wage agreements.’’

In the last meet between the FM and the bank chiefs, most banks had pressed for greater autonomy in deciding on mergers, branches and HR policies.

S S Kohli, CMD of PNB said, “The step is welcome move for the PSU banks. More so, the autonomy to the banks regarding the closure and mergers of unviable branches, opening of overseas offices and HR policies are major steps.’’

The government also granted autonomy to the PSU banks to enter new areas of business and foray into the overseas markets. Bank officials explain that this implies that after the respective board of the banks ratifies such moves, there is no need to revert back to the finance ministry.

According to A K Khandelwal, CMD of Dena Bank, “The policy overall is positive and indicative of the government’s resolve to allow banks to go about their business with minimum hassles and roadblocks. However, a bank will still be required to seek the RBI’s permission.’’

Moreover, some bank officials are expecting opposition on the political front from the Left parties. ‘‘It’s to be seen how the Left parties and bank unions look at the new measures. There will be opposition,’’ said a senior official of a bank.