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Tamal Bandyopadhyay
Mumbai, Apr 4: The centre is toying with the idea of setting up a restructuring agency for the weak public sector banks on the lines of the Disinvestment Commission. The idea behind the setting up of the agency is to monitor the restructuring process in the financial sector which is set to witness a string of mergers and acquisitions over the next few years. In the recent past, both Malaysia and Thailand have set up similar bodies to oversee restructuring of weak banks.
According to sources, special advisor to the Reserve Bank of India and former State Bank of India chairman MS Verma has discussed the issue with RBI governor Bimal Jalan. The discussion assumes significance since Verma heads the recently constituted panel on weak banks which is currently studying the state of affairs in three weak banks-Indian Bank, Uco and UBI.The panel is expected to submit its report in June. The RBI advisor, when contacted, did not rule out the possibility of looking into the issue of creating a restructuring commissionfor the financial sector. He, however, refused to elaborate on the subject. According to sources, the proposed body will supervise the entire consolidation process in the financial sector which will be ushered in through mergers and acquisitions. Both the second Narasimham panel as well as the SH Khan committee on harmonising the role of banks and financial institutions have dwelt on the subject of mergers among strong banks and financial institutions. The proposed bank restructuring body will also closely look into the concept of asset reconstruction company (ARC). Despite the acceptance of the Narasimham panel's recommendation on ARC, the finance ministry has not been able to set up a single ARC till date. The ministry is in favour of allowing strong banks and financial institutions joining hands to set up the ARCs.
"The restructuring commission can oversee the entire process. It can decide on at what price the bad debt should be sold to an ARC. Allowing weak banks to float ARCs will involve moralhazards," sources said.
Meanwhile, a team of the working group on weak bank has already started interacting with the managements of the Chennai-based Indian Bank as well as the two Calcutta-based banks. Plagued with a very high level of non-performing assets, Indian Bank has posted an accumulated net loss of Rs 2026.99 crore over the last year while Uco's accumulated net loss since 1005-96 is pegged at Rs 509.11 crore and that of UBI's Rs 348.10 crore. High administrative cost, low productivity and a large number of loss-making branches have characterised the operations of the two Calcutta banks.The Uco board has recently met to discuss the report of a sub-committee which has recommended a job cut for 7,000 people and closure of 300 unviable branches besides reducing the retirement age to 58 and shelving of the wage settlement to revive the ailing bank.
According to Verma, the major areas of concern are the bulk of NPAs in these weak banks and the work culture as well as the size of the workforce. "Thepace of the business growth should justify the size of the workforce," he said adding that recapitalisation of banks is not a long-term solution.
INSIGHT
The scope of a restructuring agency should not merely be limited to the weak banks. Essentially, such an agency should be entrusted with the task of executing the reform blueprint mapped out by the two Narasimham committee reports. The country's financial system will be affected by the restructuring of the corporate sector, one symptom of which has been the contentious issue of further funding steel companies. A restructuring agency with a wide mandate is needed to look into these issues and strengthen the financial system. Of course, the agency should not go the way of the Disinvestment Commission, whose recommendations have been studiously ignored.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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