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Weak banks package to cost Rs 3,500 cr

Sarbajeet K. Sen

NEW DELHI, Dec. 5

THE restructuring package for the three weak public sector banks would cost the Government Rs 3,500 crore. The package, which has already been finalised and is expected to be cleared soon, would be initially restricted only to recapitalisation support an d for providing subsidy for the voluntary retirement schemes (VRS).

The third component of the restructuring package, the support for technology upgradation and modernisation, is to be taken up once the Government gives its assent to the technology plans proposed by the three banks - Indian Bank, UCO Bank and United Bank of India (UBI).

Highly-placed official sources said that once the technology support plan was incorporated, the total assistance through the restructuring package was expected to cross Rs 5,000 crore.

Officials said that the immediate assistance of Rs 3,500 would include Rs 2,300 crore as recapitalisation of the three banks, while the rest would be set aside as support for their VRS package.

Out of the Rs 2,300 crore, Rs 1,750 crore would be provided for recapitalisation of Indian Bank, while the capital support to UBI would be Rs 300 crores and that for UCO Bank Rs 250 crore.

The massive injection of funds into Indian Bank is being necessitated due to the fact that its capital adequacy ratio stood as `negative' on March 31, 2000, while the other two banks have a ratio slightly above the mandatory stipulated minimum of 9 per c ent. While UBI has a CAR of 9.60 per cent, UCO Bank has 9.15 per cent.

Officials said that the exact amount to be apportioned to each of the three banks for VRS would be decided once they are able to ascertain the number of employees who would be finally given the option to exit through the route and the consequent hit that each bank would take on that account.

Officials said that the Government had decided that it would provide the principal amount required for VRS, but would subsidise the interest cost on the fund that the banks would have to dole out for the exercise.

``If a bank is able to meet the cost of the VRS package through its own funds, the Government would subsidise the cost of the fund. Alternatively, if the bank has to borrow from another bank to implement its VRS offer, the Government would provide intere st subsidy as assistance,'' officials said.

They said that the technology upgradation and modernisation component was being kept out at present since the Government would have to convince itself that the plans proposed by the banks was adequate and necessary.

``All the three banks have drawn up ambitious plans for technology upgradation. There might be need for some fine-tuning. We might have to propose some alterations by adding some features, while some aspects might have to be dropped,'' the officials adde d.