PSU Bank Stock Break out to begin new uptrend

PSU Bank Stock Break out to begin new uptrend

In a precursor to banking sector reforms that are likely to be unveiled in the budget on Monday, the government on Tuesday granted state-run banks greater freedom of action to make acquisitions of businesses, pursue new lines of business, close or merge unviable branches and take all human resources decisions.

The government issued a blueprint to provide autonomy for PSU banks which analysts said could improve efficiency across a sector dominated by government-run players. The greater operational freedom, officials said, would provide the PSU banks with a level playing field to compete effectively with the private sector banks in India.

Shares of state-run banks surged on the news and helped lift the Sensex by 0.8%. The BSEs Bank Index rose 1.6%. The market is betting that the government will raise the foreign direct investment (FDI) limit in private banks from the present 49% to 74% and also lift the 10% cap on voting rights. Budget-eve expectations include hopes that the government will provide tax and other incentives to promote mergers and acquisitions in the banking sector with a view to create mega banks which can compete on the global scene. Officials said that the blueprint is based on the common minimum programme (CMP) of the UPA government which laid down that PSU banks will be given full managerial autonomy. It aims to equip PSU banks with greater operational flexibility to transact business more efficiently. Officials said that Tuesdays reforms were another step to reform the countrys financial sector and deepen the liberalisation process which began in 1991.

Under the blueprint issued on Tuesday, the boards of PSU banks will enjoy freedom to carry out their functions efficiently without impediment, subject to statutory requirements and government policies. The banks will be allowed operational freedom to open overseas offices, set up subsidiaries and exit a line of business.

They can decide all HRD issues relating to staffing pattern, recruitment, placement, transfer, training, promotions and pensions. They can prescribe standards for categorisation of branches, based on volume of business and other relevant factors. They can send officers on visits abroad to interact with investors, depositors and other stakeholders without the need for government approval.

They can lay down policy of accountability and responsibility of bank officials. The boards of stronger banksthose with capital adequacy ratio of 9% or more, net non-performing assets (bad debt) of less than 4%, net profits over the last three years and minimum owned funds of Rs 300 crorewill have additional autonomy for framing their own HR policies.

These banks can create additional posts of general managers, sanction differential pay linked to performance within the pay-scales decided after negotiations and decide on the amount of contribution to be made to the staff welfare fund.

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