Indradhanush Scheme for banks not applied as envisaged

•  According to a report by the CAG, the Centre’s ‘Indradhanush’ scheme to recapitalise public sector banks (PSBs) based on their performance was not implemented in a manner envisaged.
• As per the scheme, a portion of the recapitalisation was to be based on the bank’ performance. However, this was not followed during disbursal of funds.
• The parameters used to determine whether banks required capital changed from year to year and in some years the rationale for capitalising banks was not even recorded. Hence, the scheme’s target of raising Rs. 1.1 lakh crore from the markets by 2018-19 was not likely to be met.
• Also, some banks that did not qualify for additional capital as per the decided norms, were infused with capital, and in some cases, banks were infused with more capital than required.

About Indradhanush:

• Mission Indradhanush is a 7-pronged plan to address the challenges faced by public sector banks (PSBs). Many of the measures taken were suggested by P J Nayak committee on Banking sector reforms as indicated.
• The 7 parts include appointments, Banks board bureau, capitalisation, de-stressing, empowerment, framework of accountability and governance reforms (ABCDEFG)
• Appointments - separation of posts of CEO and MD to check excess concentration of power and smoothen the functioning of banks; also induction of talent from private sector ( recommendation of P J Nayak Committee)
• Bank Boards Bureau - will replace the appointments board of PSBs. It will advise the banks on how to raise funds and how to go ahead with mergers and acquisitions. It will also hold bad assets of public sector banks. It will be a step into eventual transition of the bureau into a bank holding company. It will separate the functioning of the banks from the government by acting as a middle link. The bureau will have three ex-officio members and three expert members, in addition to the Chairman.
• Capitalisation: Capitalisation of the banks by inducing Rs 70,000 crore into the banks in the next 4 years. Banks are in need of capitalisation due to high NPAs and due to need to meet the new BASEL- III norms
• De-stressing: Solve issues in the infrastructure sector to check the problem of stressed assets in banks
• Empowerment: Greater autonomy for banks; more flexibility for hiring manpower
• Framework of accountability: The banks will be assessed on the basis of new key performance indicators. These quantitative parameters such as NPA management, return on capital, growth and diversification of business and financial inclusion as well as qualitative parameters such as human resource initiatives and strategic steps to improve assets quality.
• Governance Reforms: GyanSangam conferences between government officials and bankers for resolving issues in banking sector and chalking out future policy.

By: Vishal