RBI panel for weak bank revival

February 8: The Reserve Bank of India on Monday set up a working group under the chairmanship of former State Bank of India chairman MS V...

February 8: The Reserve Bank of India on Monday set up a working group under the chairmanship of former State Bank of India chairman MS Verma to suggest measures for revival of weak public sector banks. The committee will submit its report by June 30.

This is the first time that the apex bank has set up a committee to revive the weak public sector banks. The move comes against the backdrop of the Centre8217;s plan to float asset reconstruction companies to bail out three weak banks 8212; Indian Bank, UCO Bank and United Bank of India. Former RBI deputy governor SS Tarapore had earlier recommended that the weak banks should be converted into narrow8217; banks and focus only on investments in government securities.

Verma said that the committee8217;s most important work will be to define a weak bank8217;. quot;A number of committees have been set up including the Narasimham Committee to look into weak banks. The definition of weak bank holds the key8230;it will be the benchmark for deciding the status of a bank,quot; Vermasaid.

According to him, the committee will not go for a case-to-case study of weak banks as it will be time consuming. quot;We will look at them in the Indian context8230;whether these banks can be revived or are they a threat to the system. We will have to see at what level of capital adequacy ratio and other business ratios that make a particular bank a weak bank,quot; Verma said.

The terms of reference of the working group are:

To frame the criteria for identification of weak public sector banks.

Study and examine the problems of weak public sector banks.

Undertake a case-by-case examination of the weak public sector banks.

Identify those which are potentially revivable and suggest a strategic plan of financial, organisational and operational restructuring for weak public sector banks.
The five members of the Verma panel are Vysya Bank chairman and former Corporation Bank chief KR Ramamurthy, chartered accountant and former president of the Institute of Chartered Accountants ofIndia MM Chitale, Icra managing director PK Choudhary, former RBI executive director JR Prabhu and former director of Indian Management Institute, New Delhi, Sushil Chandra.

RBI general manager CR Murlidharan of the department of banking operations and development will be the member secretary of the group.

According to Verma, the first meeting of the committee is yet to be decided but will be held soon. The Narasimham Committee on banking sector reforms has suggested the setting up of asset reconstruction companies ARC to bail out the weak banks instead of recapitalising them year after year which puts pressure on the Centre8217;s fiscal management. The government has been continuing with the practice of recapitalising weak public sector banks.

The Narasimham Committee had also recommended that narrow banking could also be introduced for weak public sector banks. But the RBI is not in favour of this recommendation and has suggested that merger and acquisitions could help revive the banks.

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Both theNarasimham panel as well has the Khan panel on harmonising the role of banks and financial institutions have made suggestions in favour of mergers between banks and institutions and consolidation in the financial sector.