Finance ministry sets new performance benchmarks for government banks

New Delhi: The finance ministry has told state-run banks to achieve new benchmarks that measure financial and functional efficiency to qualify for more cash injection in the coming years. State-run banks will have to improve three key measures of performance: savings and current deposit ratio, employee-branch ratio and profit per employee, said a finance ministry official. These new targets are over and above the annual statement of intent the government signs with banks. "We want them to prepare for the future as more private players will join the fray," the official said referring to the draft guidelines for new bank licences put out by the Reserve Bank. The North Block has plans to infuse 3 lakh crore to 5 lakh crore in some 21 state-run banks over the next decade. Under the ministry guidelines, current and saving account, or CASA, deposits, which yield low-cost funds, should form 45% of the total bank deposits. The CASA deposit ratio stood at 41% for private banks in 2010-11 while it was 33% for public sector banks, according to a report by rating agency ICRA. Banks with a high CASA ratio would be able to keep their cost of funds under control even in a scenario of rising interest rates, the report said. But bankers say it is not that easy. Higher volumes of CASA deposits can only happen when there is a marginal difference between the fixed deposit rates and saving rates, said a senior official at a state-run bank, requesting anonymity. "In the present situation that seems unlikely," he said. Larger PSBs such as Punjab National Bank and Bank of Baroda have been asked to maintain a CASA ratio of 45%. At the end of June, BoB had a CASA ratio of 33.9% and PNB 38.1%. Smaller banks have to achieve 40% CASA in three to four years. With RBI freeing up savings bank rate now, state run banks will be able to raise rates to attract more of these cheaper funds.