10 Public Sector Banks asked to cut cost

According to media reports, 10 public sector banks have been asked by the Ministry of Finance, Government of India, to cut cost, in order to get fresh capital infusion, which was promised by the Government under Indradhanush program.

The list of these banks include Uco Bank, United Bank, Allahabad Bank, Dena Bank, Indian Overseas Bank, Vijaya Bank, Central Bank of India, Bank of Maharashtra and IDBI Bank. The Government has set some specific cost cutting targets for these bank to cut cost by 25% within next three years.

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It is reported that employee unions of these banks have agreed to the conditions of Government and have already signed MOU with management.

Banks have been advised by the government to take measure to reduce cost, which inter-alia includes:

• Lesser hiring of new staff
• Lesser Branch expansion & ATMs
•  Shutting down of loss making branches and ATMs
• Outsourcing of staff (like security guards etc.)

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Specific targets have been set for turnaround of these week banks:

• 10% decline in Gross NPA every year
• 0.50% decline in Net NPA every year
• Upgrading of atleast 15% gross NPA yearly.
• 10% cash recovery in written off accounts

These banks have been advised to focus more on retail loans and loans below Rs.5 Crores, since NPA percentage is very high in corporate loans.

These banks are struggling with mounting level of NPAs and reporting losses due to huge provisions, which is resulted into requirement of fresh capital in order to meet the regulatory requirements of maintaining minimum capital (Basel norms).

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Uco Bank’s gross NPAs  are at 17.18% (Dec 16) and reported loss of Rs.437.09 crores for the quarter ending Dec 16.

United Bank of India’s gross NPAs are at 15.98% and reported loss of Rs.58.39 crores for the Dec 16 quarter

IOB’s gross NPAs are at 22.42% and reported loss of Rs.554.44 crores for the Dec 16 quarter

Central Bank of India’s gross NPAs are at 14.14% and reported loss of Rs.903.35 crores for the Dec 16 quarter.

Comment how this is going to affect the banks and employees of these banks.