Government may regulate incentives to banking staff-- Economic times
MUMBAI: Regulating incentives for bank staff down the line and independent scrutiny of sale of insurance policies are among the measures regulators contemplate to prevent recurrence of money laundering and tax evasion charges, said three people familiar with the thinking. The new set of rules, which the Reserve Bank of India and Insurance Regulatory Development Authority of India may come up with in the next few weeks, may lower revenue growth of banks from sale of insurance policies.
The insurance regulator may evolve its own guidelines on 'know your customer', compounding the enormous paper work that acts as a deterrent to small investors. "We have no problem if banks give incentive-linked salary, but they should take a holistic view on gauging employees' performance, including the customer service aspect," said a central banker who did not want to be identified. Regulators were forced to contemplate new measures following a sting operation by Cobrapost.com, an online media company, which showed staff at Axis bank , HDFC Bank and ICICI Bankas keen to help customers avoid tax and circumvent rules to convert black money into white money.
Investigations by banks showed that there were no violations since no transaction took place, said people familiar with the probe. But the regulator, which conducted its own probe, may still penalise the banks for lax governance standards, or at least warn them. Disproportionate incentives based on revenue or profit generation have fuelled unethical practices in the financial services sector across the globe and many regulators are cubing practices that are harmful to the system in the long run.
RBI has a say on the salaries and bonuses of bank CEOs of private and foreign banks, but does not tinker with staff salaries. It may ban banks from selling third-party products though their branches. If banks do not get their act together, they may even be asked to float a 100 per cent subsidiary to sell financial products, said the RBI official. Staff at private and foreign banks are incentivised to sell insurance products and mutual funds, mobilising deposits and trading in bonds and currencies.
Finmin aims to halve net bad loans of PSBs
NEW DELHI: Concerned over the rising bad loans of the state-run banks, the finance ministry is working out a plan to reduce their net non-performing assets (NPAs) to 1% of net advances by the end of the current financial year.
"Each bank is in a different situation. Though the guidelines will be issued for all banks, there can be some relaxation on implementation for some banks under exceptional circumstances," said a senior finance ministry official.
State-run bank's gross NPAs rose to 4.18% of advances by the end of December 2012 compared to 3.22% a year ago. Net NPAs, which are arrived at after deducting the monies set aside to cover losses from the gross amount, increased to 2.12% in December 2012.
According to the official, the country's largest bank, State Bank of IndiaBSE 0.57 %, has been able to reduce its net NPA by 1% in the January-March quarter of 2012-13.
"If a bank like SBI, which has a huge balance sheet, can achieve this, there is no reason why other banks cannot follow suit," the above quoted official said.
"We have made recoveries. There were some soft NPAs," SBI chairman Pratip Chaudhuri confirmed. SBI's net NPAs rose to 2.59% of advances at the end of December 2012 from 2.22% in December 2011.
The finance ministry feels that banks need to actively push their staff in order to improve their recoveries. The issue is also expected to be discussed in the finance minister P Chidambaram's meeting with the chairmen of select banks in Mumbai on Monday.
Bankers, however, feel that reducing net NPAs to 1% by the end of this fiscal is a daunting task.
"In the current economic situation, it is nearly impossible. Some banks may have done recoveries, but there is no guarantee that they may be able to replicate the success every quarter," said the chairman of a state-run bank.
The finance ministry has already directed state-run banks to provide details of the recovery and the prudential write-offs for the last six financial years. Explanation has been sought from banks if the write-off amount is more than the recovery made.
The government has also asked non-official directors of public sector banks to take on a more proactive role in governance checks. Banks will further need to get their top 300 non-performing accounts reviewed by the management committee of the bank board and pursue an effective and strict recovery policy
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