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Panel wants government capital in three ailing banks

A high-powered Indian panel has favoured capital infusion by the central government to turn around three weak banks, Parliament was told on Friday.

Junior Finance Minister Gingee N Ramachandran told Parliament that a panel headed by the former Reserve Bank of India Deputy Governor S P Talwar had said restructuring of the three weak banks with capital infusion by the federal government was the best alternative for turning them around.

The government had set up the panel to look into various options to restructure the three weak banks - Indian Bank, UCO Bank and Union Bank of India which are saddled with bad loans.

The Indian banking industry's non-performing loans, or assets that yield no earnings, totalled Rs 608.41 billion, at the end of March 2000, up from Rs 587.22 billion a year earlier. The bulk of these bad loans are estimated to be with India's 27 state-run banks.

"The recommendations of the group are under examination of the government," Ramachandran told the lower house of Parliament in a written reply.

He said the group had recommended recapitalisation assistance of Rs 23 billion over two years for the three weak banks to enable them to achieve and maintain prescribed capital adequacy ratio.

According to a Reserve Bank of India report, Rs 57.29 billion in support was injected into these three banks by the federal government between 1992 to 1999.

An expert panel appointed by the central bank in 1998 estimated that in the following three years another Rs 55 billion would be needed to cover the overall cost for restructuring these banks.

Although the performance of these three banks has improved marginally in recent times, analysts say strong steps are needed to make these banks financially sound.

In 1999-2000, the capital adequacy of Indian Bank, one of the three weak banks, was four per cent against a prescribed nine per cent.

Ramachandran said the proposed restructuring of the three weak banks contain financial as well as non financial parameters.

He said the restructuring proposal includes reduction in cost of deposits, accelerated recovery of bad loans, reduction in overhead costs and operating expenses, hiving off unprofitable subsidiaries and closure of unviable overseas operations.

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