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Government to pump in funds into three weak banks - Views on News from Equitymaster
 
 
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  • Feb 5, 2000

    Government to pump in funds into three weak banks

    The government has decided to set aside Rs 8 bn in the coming budget (2000-01) to recapitalise three weak banks UCO, United Bank of India and Indian Bank as per the suggested revival plan. However the total recapitalisation needs of these three banks is to the tune of Rs 15 bn.

    This revival plan has also suggested a voluntary retirement scheme (VRS) for these banks and the setting up of an asset reconstruction company.

    The government has decided to go by the recommendations of the Verma committee which suggested a revival plan for these banks. However in the tight fiscal scenario this would put a burden on the government's budgetary allocations. To add to this it would be difficult for the strong bank unions to accept VRS for their employees apart from wage freeze and they are likely to put up harsh terms before they accept the recommendations. However as the other option for these banks is closure the unions could be more flexible. While this infusion is fine to clean up the balance sheets temporarily the long run solution would come about only when these banks realize the importance of managing or reducing the NPA levels and also improving on their credit appraisal systems.

    The Government has continued to support weak banks even though its fiscal position has been deteriorating at the cost of the tax payers earnings. Although this may be justifiable when shoring up its vote bank and on the name of public welfare, there are no steps being taken so that these banks will not find themselves in a similar situation again.

    If the government keeps funding these banks, the banks will never become efficient and try to improve on their own. Their dependance on the government's coffers will continue and there will be no respite. They should be left on their own to tackle their problems or otherwise shutdown and not be a burden on the Indian economy.

     

     

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