FINALISE FY11 TARGETS BY FEB NEXT, RBI TELLS BANKS

The government, in a letter to all PSU banks, has advised the banks to finalise targets for the next financial year based on third quarter results and the trends they witness in the fourth quarter and submit the same to the Govt. by February 2010 itself. Normally banks used to submit the targets in July and August every year.  The finance ministry thinks that this step will give banks adequate time to devise a strategy to meet year-end targets. The government has been worried that banks are indulging in uncompetitive practice to meet targets to achieve deposits and advances target’ and that ‘quite often banks adopted short cut methods like window dressing’ to meet these targets. As a result, such practice would ‘marginalise the intended benefits’ of advance planning for the year.


Every year, the public sector banks have to submit their annual targets for the year for different categories like profits, advances and deposits, bad loans and so on. These targets are popularly known as statement of intent (SoI) and is in the form of an agreement between the government and the chairman and managing director of each government-owned bank. Till now, these targets were submitted after finalising bank’s annual results, followed by consultative meeting within the bank management, and the SoI is finally submitted after June.


The window dressing practices usually involve purchasing bulk deposits by offering marginally higher rates of interest. At the same time, credit numbers are beefed up by extending short-term loans to large corporates who deploy funds in their treasury.


Source: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/Finalise-FY11-targets-by-Feb-next-RBI-tells-banks/articleshow/5411232.cms