RBI holds up Punjab & Sind recapitalisation

Central bank refuses provisioning requirement leeway

The government's restructuring proposal for Punjab & Sind Bank has run into trouble with the Reserve Bank of India refusing to provide forbearance on provisioning requirements.

Sources involved with the restructuring exercise said the finance ministry had asked the central bank to provide the Delhi-headquartered bank 10 years to provide for its pension liabilities.

Similarly, a three-year grace period had been sought for some other provisioning requirements. The bank has also not complied with norms on bad and doubtful debts.

With the tough stance adopted by the RBI, the finance ministry may have to shell out around Rs 500 crore for recapitalising the bank.

Indian Bank was the last bank to have received recapitalisation bonds of Rs 1,300 crore from the Centre. The bonds were issued in 2001-02 and the bank has since turned the corner.

"The ministry has once again taken up the matter with the RBI and the proposal will be discussed once again," said a source. The finance ministry is citing a precedent in case of some other nationalised bank while seeking forbearance.

R P Singh, the bank's officer on special duty (the officiating chairman and manging director) met Finance Minister P Chidambaram and other senior ministry officials on Monday.

Officials refused to disclose the details of what transpired at the meeting.

They said that the government was working out details of the restructuring which would be announced shortly. The recapitalisation assistance is expected to be part of the first supplementary demands for grants to be sought from Parliament during the monsoon session that starts on 25 July.

The ministry would decide on the quantum of assistance after the RBI decides on the finance ministry's request for forbearance.

Last month Chidambaram had announced that the government had decided to extend a recapitalisation package to Punjab & Sind Bank.