Public sector bank heads may get more sops for debt recovery

Dheeraj Tiwari, ET Bureau | 16 Aug, 2013, 04.00AM IST

NEW DELHI: The finance ministry plans to increase the weightage given to debt recovery in the appraisals of top public sector bank managers in an effort to stem the rising tide of bad loans at these lenders. 

The ratio of non-performing assets to total credit of state-run banks rose to 3.78% in March 2013 from 3.17% a year ago. At present, a bank chairman can claim up to 8 lakh as incentive if he scores a perfect 100 on the appraisal matrix. The performance incentive for executive director is 6.5 lakh. 

"Besides credit growth and other banking parameters, there is a need to focus on recoveries. If the top brass at the banks make an extra effort towards it, the action will percolate to the lower ranks," a finance ministry official said requesting anonymity. 
The performance of a PSU bank and its executives is evaluated through a statement of intent, which the lender signs with the government. A SoI lists annual goals for the bank and its executives and sets parameters such as credit growth, net profit, priority sector lending and NPA reduction. 

The performance evaluation is done by a sub-committee of the bank's board of directors and comprises nominees of the government and the Reserve Bank, and two other directors. A bank chairman or executive director could lose his performance incentive if he scores less than 80% on the appraisal matrix 

Last year, the government had included new parameters such as performance of the regional rural banks sponsored by commercial banks as well as the progress on financial inclusion in the appraisal system. The finance ministry has already directed banks to get their top 300 non-performing accounts reviewed by the management committee of the bank board. 

For public sector banks, the top 30 NPAs, worth 61,123 crore, constitute 39.7% of their gross NPAs. 

"NPAs have been eating into the profit of PSBs. Banks are already taking measures for recoveries. We have already asked banks to take preventive steps in cases where they fear loan default," said the official quoted earlier. 

The country's biggest lender, SBIon Monday reported a 13.6% dip in the first quarter net profit to 3,241.08 crore. It said gross NPAs rose 5.56% of gross advances at the end of June from 4.99% a year ago. 

On Tuesday, financial services secretary Rajiv Takru had said that banks will take strict action against wilful defaulters, adding that there have been more cases of people taking advantage of the distress situation in the economy. 

Takru had warned that promoters who are wilful defaulters are likely to lose control or management of their companies.