Picture Credit: www.swapsushais.blogspot.com

Indradhanush scheme is one of the most comprehensive reform undertakings for revamping the public sector banks since 1970. Indradhanush, the word itself specifies “Rainbow” in English, which means seven colours, similarly on the same terms seven steps taken by the government for transforming public sector banks.

  1. Appointment
  2. Bank Board Bureau
  3. Capitalization
  4. De-stressing Public Sector Banks
  5. Framework of Accountability
  6. Empowerment
  7. Governance Reform



Under this, the government decided to separate the post of Chairman and Managing director (CMD) and the respective positions to be filled the Chief Executive Officer (CEO), who will get the position of MD & CEO and there will be other people who will be appointed as non-executive chairman of public sector bank. This process was revamped to ensure proper check and balances.

Bank Board Bureau

It consists of professional, experts and officers who will engage with the Board of Directors of all public sector banks to formulate strategies for economic growth and development. It consists of a committee which includes:

  1. Chairman
  2. Six members- 3 officials and 3 experts

It also includes a search committee which consists of Governor, RBI and Secretary. It is expected to come into effect from 1st April 2016.


The Government of India is keen to capitalize all the banks in order to have a safe buffer. A total of extra capital require for the next four years is likely to be 1,80,000 crores. This estimation is done on credit growth rate. Out of the total requirement government of India have proposed 70 thousand crores out of budgetary allocation which is planned to be distributed over the 4 years. For last year and this year, a total of 25 thousand crores each year and the next 2 years 10,000 crore each year, the amount distributed is in such a way that first 40% is given to banks which require the capitalization amount the most the other 40% will be provided to the top six banks for their work and the remaining 20% for the best-performing banks for the year. Improvement in market valuation due to Non-Performing Asset management and operating improvements will enable banks to raise the remaining 1,10,000 crore from the market.


Infrastructure sector has been the main recipient of Public Sector Banks funding for several years but due to several reasons various projects were stalled which led to Non-Performing Assets burden on banks. The various reasons for this were regulatory agencies, land acquisition, lack of availability of fuel and transmission capacity, market condition, an inability of banks to restructure projects. In order to overcome these various measures were taken such as:

  • Long term availability of fuels
  • Flexibility in restructuring
  • Formation of Debt Recovery Tribunals for the recovery of bad loans
  • Formation of Joint Lenders Forum and Corrective Action plan to determine the problem and timely restructuring the viable accounts.


This provides the Public Sector Banks to take decision independently keeping the interest of the organisation. There would be no interference from the government in the working of banks and the banks can take accountability of their work. Banks have also provided with flexibility in hiring and have been asked to form Grievance Redressal Scheme for customers

Picture Credit: www.moneylife.in
Picture Credit: www.moneylife.in

and their staff for handling different concern and queries of the people.

Framework of Accountability

It is a method to measure the Public Sector Banks performance, before banks used to come up with the annual target but now there have been changes made to it. The Performances will be measured based on Key Performance Indicators such as capital efficiency, business diversification, Non-Performing Asset recovery and financial inclusion remaining includes qualitative criteria which are HR initiatives, improvement in credit rating etc.

Governance Reforms

This started with Gyan Sangam– a conclave of Public Sector Banks and Financial Institution held in Pune which was attended by Prime Minister, Finance Minister,        MoS (Finance), Governor, RBI and CMDs of various Public Sector Banks. A focus group discussion was made to take the decision on optimizing the capital, digitizing processes, strengthening risk management, improving managerial performance and financial inclusion.