RRB provisioning to hit SBI, UCO Bank

United Bank, Central Bank also expected to be hit

The profitability of public sector banks (PSBs) "" Central Bank of India, State Bank of India (SBI), United Bank of India and UCO Bank "" may be hit this financial year as they will be required to provide for losses accumulated by their associates "" the regional rural banks (RRBs).

The Reserve Bank of India has indicated that PSBs will be required to make full provisioning for accumulated losses, if any, as per the accounting standard pertaining to associate banks.

PSBs have 35 per cent equity holding in RRBs and as sponsor banks they exercise operational control over RRBs. The central government and the state governments own 50 per cent and 15 per cent stakes, respectively.

"In line with the accounting standard pertaining to associate, public sector banks will have to fully provide for depreciation on their investments to the extent of their equity holding in RRBs. This move will give investors an overall picture of a bank's financial health," said a banking sector source.

Hitherto, PSBs treated their investments in RRBs at face value by categorising them as permanent assets and did not make any provisioning towards depreciation in the value of their investments.

But as per the new accounting standards, banks will be required to mark to market their exposure, including accumulated losses, to the 196 RRBs.

As of March-end 2003, the RRBs run by Central Bank of India, SBI, United Bank of India, and UCO Bank had totted up accumulated losses aggregating Rs 1,959.49 crore.

The accumulated losses piled up by RRBs run by other PSBs are comparatively much less.