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Govt issues new guidelines to PSU Banks, Non-performing service providers will be banned from all banks


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Service providers to public sector banks (PSBs), such as vendors, law and consulting firms, and IT companies, may encounter difficulties in securing contracts from all PSBs if they fail to meet performance expectations or cause project delays for any one bank. To address this issue, the government has instructed banks to identify these underperforming firms and establish a negative list. The objective is to prevent these non-performing entities from receiving business from other government banks. The government expects PSBs to share this information amongst themselves and take strict action against those who do not meet the required standards.

A senior bank executive has confirmed these developments and mentioned that internal discussions will take place among the banks. One suggestion is to create a web portal where all PSBs can share feedback and raise concerns, if necessary. “We are considering the formation of a working group consisting of representatives from five banks to study and propose a comprehensive framework. This framework would include the implementation of a web portal where vendor performance can be uploaded and modified,” the executive explained. Another bank executive emphasized the need for a detailed review of the project’s scope and the information to be captured before proceeding. “Should there be a threshold to capture only strategic vendor data? All these matters will be discussed before moving forward with this project,” he added.

Earlier this year, the finance ministry conducted a review meeting aimed at enhancing the effectiveness of Debt Recovery Tribunals (DRTs). As a result, banks were directed to conduct periodic performance reviews of their empaneled advocates and streamline the assignment of their cases based on their performance. Moreover, banks were instructed to ensure the presence of their officers at all hearings related to their respective cases before judicial forums. According to the latest data from the finance ministry, there are approximately 215,000 pending cases before the DRTs as of January 2024, with 162,000 of them being original applications filed under Section 19 of the Recovery of Debts and Bankruptcy Act (RDB Act), 1993.

In addition to these measures, the government has encouraged PSBs to collaborate, expand common utilities and initiatives, and engage in peer-to-peer collaboration by sharing technology, operations, and people capabilities. Facilitating this collaboration is PSB Alliance Pvt. Ltd., an intermediary established by state-run banks. The firm focuses on delivering financial and non-financial banking services directly to customers’ doorsteps by creating common applications and platforms.

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