The Centre has directed the banks to finalize their targets for 2010-11 by February 2010 and not delay it till July-august every year. With this the government wants to prevent window dressing and allow banks to plan better for year-end targets.
Every year, public sector banks have to submit their yearly targets for different categories like profits, advances and deposits, bad loans and so on. These targets are collectively known as statement of intent (SoI) and are in the form of an agreement between the government and CMD of every state-run bank.
The government has framed about 20 parameters and public sector banks have to decide the target for each of them under the SoI. Till now the statement was submitted after finalizing bank's annual result, followed by a consultative meeting within the bank management. Therefore the SoI was submitted after June.
The government, in a letter to all public sector banks, has said that they should finalise the targets for the next financial year based on the results of the third quarter and trends they see in the fourth quarter.
The finance ministry holds a view that this will give banks ample time to formulate a plan for meeting year-end targets. Of late, the government has expressed concerns over banks indulging in uncompetitive practices to meet their targets.
These 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.