The Reserve Bank of India (RBI), which was closely monitoring the performance of Nedungadi Bank, found that the bank would require Rs 125 crore infusion to shore up the capital adequacy ratio to 9.0 per cent and keep it solvent, an official spokesman told reporters.
The banks accumulated losses mounted to Rs 65.48 crore resulting in negative net worth. Its gross non-performing assets (NPAs) were at 46.57 per cent of the advances while net NPAs were at 31.05 per cent.
The possibility of the bank generating sufficient profit to wipe out accumulated loss of Rs 65.48 crore and meet the capital adequacy requirements on its own within a short time is very remote. The only option available to safeguard the interest of depositors was to amalgamate the bank with a nationalised bank, said the spokesman.
After considering all factors, RBI in October 2002 recommended the merger of the two banks to the government.
The spokesman said the Delhi-based PNB had also approached RBI for taking over the ailing bank with a view to enlarge its branch network. Established in 1899, Nedungadi Bank has 175 branches mostly in South and 1,619 employees.
The Cabinet also approved sale of SCIs 20 per cent stake in troubled LNG transportation venture Greenfield Holding Company Ltd (GHCL) to Mitsui OSK Lines (MOL). SCIs exit from the project is on mutually acceptable terms in view of its inability to maintain participation, said the spokesman.
The other decisions taken by the Cabinet include approval to amend the Prevention of Insults to the National Honour Act, 1971, and ratification of the Copenhagen and Montreal amendments associated with protection of the ozone layer.
The changes in the Prevention of Insults to the National Honour Act seek to provide a minimum imprisonment of one year in case of second or subsequent offence of deliberate insult to the National Flag or the offence of intentionally preventing singing of the National Anthem or causing disturbance to any assembly engaged in such singing.
The ratification of Copenhagen and Montreal amendments would formally reiterate Indias commitment to the Montreal Protocol on ozone depleting substances (ODS) and protecting the ozone layer, said the official spokesman.
It would also give India trade and other benefits under the Montreal Protocol and facilitate technology transfer and funding of projects using hydrochloroflurocarbons (HCFCS) and methyl bromide, he said.