The finance ministry has asked banks to cut non-core business expenses by 20% and asked lenders to avoid incurring non-essential expenditure like staff cars, refurbishing guests houses or spending on interior decoration items. The directive from the department of financial services comes at a time when there are reports that Punjab National Bank purchased three Audi cars worth Rs 130,000 for executive directors.
In a communication to the chiefs of all public sector banks, the department of financial services said that in the context of the Covid-19 pandemic, lenders must take necessary measures to ensure “productive use of their financial resources for core business activities”. Banks have been asked to place this advisory before their respective boards in its next meeting and issue appropriate instructions internally. It has also put the onus on the top management of ensuring that the instructions are followed in letter as well as spirit.
Earlier, the RBI had asked banks to conserve capital in the early stages of the lockdown. The central bank had asked all lenders to avoid paying any dividend to shareholders and has asked them to plough back the earnings.
The advisory on following economy measures is in four parts - deferring expenditure that can be avoided, a 20% expenditure cut in non-core business activity, deferring hikes in entitlements and perquisites and rationalisation of non core business expenditure. The items where expenses have to be cut by 20% include entertainment, publicity, travel, and use of external infrastructure.
