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Special cell for Govt, RBI coordination on weak banks

Sarbajeet K. Sen

NEW DELHI, Aug. 28

THE Government has decided to establish a new arrangement to coordinate the activities of the Reserve Bank of India (RBI) and the Ministry of Finance relating to the weak public sector banks.

For this purpose, a special cell is being set up within the RBI office in the Capital, which is to be headed by Mr. M. Damodaran, currently Joint Secretary in the Banking Division of the Ministry of Finance.

Mr. Damodaran, who will hold the rank of Executive Director in the RBI, is expected to take charge on September 1. The special assignment would be for a two-year period, according to official sources.

In his new capacity, Mr. Damodaran would be a crucial link in formulating the overall policies concerning the three weak banks _ Indian Bank, UCO Bank and United Bank of India. Among his responsibilities would be to monitor the compliance of the banks in implementing the revival strategies which have been approved by the RBI and the Finance Ministry, sources said.

Mr. Damodaran, an IAS officer, will complete a five-year tenure as Joint Secretary in the Banking Division on August 31. During his period, he has handled the key portfolio of banking operations, which included laying down policies for the revival of the weak public sector banks.

He was also given temporary charge of Indian Bank as Chairman and Managing Director recently, during the interim period when the Government was on the lookout for a successor to the previous chief executive of the bank, Mr. T.S. Raghavan.

The Government and the RBI are now in the midst of working out a medium-term strategy to put the weak banks on a sustained path of revival.

Officials said that the revival plans submitted by the banks are being studied by the Government and the RBI. The Government is soon expected to announce a package of measures for the banks, which would include infusion of capital to strengthen their cap ital adequacy and provide financial support for technology upgradation and voluntary retirement schemes.

The banks, on their part, are planning their internal restructuring, which would include a radical cut in expenditure. Restructuring would include de-layering the banks' operations and reducing their branch network through merger and closure of unviable branches.

The revival and restructuring of the banks is being done in accordance with the suggestions made by the M.S. Verma Committee which looked into the issue of restructuring of weak public sector banks.