Links it to future capital infusion
The Finance Ministry has written to 10 public sector banks including IDBI Bank, Bank of Maharashtra, United Bank of India, Andhra Bank and Indian Overseas Bank making it clear that the lenders would only get further capital infusion once they submit a time-bound turnaround plan.
What does 'Turnaround' mean?
A turnaround is the financial recovery of a company that has been performing poorly for an extended time. To effect a turnaround, a company must acknowledge and identify its problems, consider changes in management, and develop and implement a problem-solving strategy. In some cases, the best strategy may be to cut losses by liquidating the company rather than trying to turn it around.
The Centre, which has mandated State Bank of India’s merchant banking arm SBI Caps to vet each bank’s plan, wrote to the state-owned lenders last week stipulating that the banks would have to sign a Memorandum of Understanding (MoU) with the government, agreeing to stick to the turnaround plan.
Reason behind the move
The government’s move to crack the whip on lenders comes after some banks had reported losses in the financial year 2015-16 as well as for the nine-month period of the current financial year.