Story Of The Week


The Indradhanush scheme was launched in August 2015 with the aim to strengthen India’s Public Sector Banks (PSBs). It has already been a year since the launch and we still see PSBs struggling with issues that the scheme promised to eliminate. With rising numbers of Non-Performing Assets (NPAs) and declining growth rate, the initiative seems to be falling apart.


The Public Sector Banks (PSBs) play a vital role in India’s economy. In the past few years, because of a variety of legacy issues including the delay caused in various approvals and also because of low global and domestic demand, many large projects have been stalled. Public Sector Banks which have got predominant share of infrastructure financing have been sorely affected. It has resulted in lower profitability for PSBs, primarily due to provisioning for the restructured projects as well as for gross NPAs.

The Indradhanush scheme seeks to achieve the objective of economic growth revival through improving credit and minimising the political interference in the functioning of PSBs. The 7 pillars of the mission are as following:

  • Appointments: Selection of non-executive chairman in remaining 6 state owned PSBs till November 2015. Appointing MD & CEO of two PSBs as early as possible.
  • Bank Board Bureau (BBB): The BBB will be a body of eminent professionals and officials, which will replace the Appointments Board for appointment of Whole-time Directors as well as non-Executive Chairman of PSBs.
  • Capitalisation: Infusion a total amount of 25,000 crore rupees of capital into debt-laden banks in this fiscal in phased manner.
  • De-stressing PSBs: To develop the debt market for PSBs in order to reduce lending pressure on banks and strengthen the asset reconstruction of companies.
  • Empowerment: Provide greater flexibility in hiring of manpower in PSBs.
  • Framework of Accountability: It will seek to streamline vigilance process for quick action in case major frauds and introduce a new framework of key performance indicators (KPIs).
  • Governance reforms in PSBs: Gyan Sangam (also known as the Banker’s Retreat), a conclave of PSBs and Financial Institutions, to be held periodically. Employee Stock Option Plan (ESOP) also to be initiated for top management.





A year after the much-hyped Indradhanush framework has been introduced, the objectives are yet to be fulfilled.

  • The government underestimated the capital requirement of the public sector lenders in accordance with the provision for bad debts.
  • The human resource issues at the banks remain unchanged and the Bank Board Bureau (BBB) too has been unable to manage the problem. So far, it has had a limited play in revamping the public sector landscape.
  • The government’s plan to experiment with equity dilution in IDBI Bank is moving slowly and it has got SBI to agree to merge its banking arms with the largest bank of the country. But many public sector banks do not have a full-time chairman.
  • At the time of the revamp, announced on August 14, 2015, the government agreed splitting the post of chairman and MD, with a non-executive chairman at the helm. Since then vacancies have not been filled up.
  • The banks have been grappling with high NPA levels, leaving them little time to revamp operations.


While, the objectives of the Indradhanush initiative appear to be promising, however some issues are evident:

  1. The mission to revitalize banks is conspicuous by the absence of important stakeholder in the business of banking i.e. the banks’ customers. The customer service initiatives should have formed a part and parcel of the rainbow of reforms to enable the PSBs to face competition from the private banks that have certainly an edge over the PSBs as reflected in their performance. In fact, RBI is yet to come out with a comprehensive charter of customers’ rights, which alone can restore the trust and confidence of the public in the state run banks.
  1. The high value non-performing assets (NPAs) have been the bane of PSBs. The measures in relation to NPAs mentioned in the scheme only seem to be a reiteration of the existing measures being taken by the RBI and government in this regard. Unless the government takes steps to strengthen the hands of the banks through special legal powers to tackle large borrowers, there is little hope for any improvement in the performance of banks in our country.
  1. There has to be a streamlining in roles of the RBI which also performs banking regulation, policy and appointments as there is a Bank Board Bureau to be set up. Multiple controls over the banks may act as obstacles. Also, the structure of the Bank Board Bureau is not clear and its autonomy in terms of the role is not ensured.





The government’s promise of recapitalising PSBs over a three-year period seems to be on track, but it seems inadequate considering the scale of the stress. With most PSBs struggling with mounting non-performing assets (NPAs) – primarily from steel, infrastructure and power sector companies – recapitalisation alone is not sufficient to help PSBs overcome inherent structural issues. The Public Sector Banks need wider reforms for better performance. Indradhanush is certainly a step in the right direction, however, more efficient policies need to be formulated in order to help PSBs emerge from the deep economic crevice.




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