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Sarbajeet K. Sen

New Delhi , Oct. 23

WHILE worries have been expressed that conversion into a bank may lead to a Rs 25,000-crore accumulated burden on Industrial Development Bank of India (IDBI) after five years under the proposed roadmap for transition, the Ministry of Finance remains unperturbed.

Concern has been expressed on account of the proposed five-year moratorium on the statutory liquidity ratio (SLR) and cash reserve ratio (CRR) requirements for the converted commercial bank.

Estimates placed before the Parliamentary Standing Committee that had scrutinised the Bill to convert IDBI into a bank had pointed out that the moratorium might backfire since it would lead to an accumulated burden of Rs 25,000 crore on the sixth year.

The Standing Committee had also expressed worry on the count.

However, Finance Ministry officials point out that the worries may be misplaced and based on erroneous calculations. "The issue need not be resolved on the sixth year and after. The converted bank would continue meeting SLR and CRR requirements to the extent it can during the five-year period itself," a top Ministry official said.

The Ministry feels that a progressively and pragmatic approach towards meeting the reserve requirement would ensure that the new banking entity would not find itself burdened with a massive requirement. "The five year moratorium can be taken as the outer limit. The reserve requirements can even be met within the first five years itself," official said. While the SLR requirement for banks currently stands at 25 per cent of net demand and time liabilities (NDTL), CRR stands at 4.5 per cent.

IDBI's union representatives had pointed out to the Standing Committee that the requirement would be as large as Rs 5,000 crore each year.

"At the end of the fifth year when the exemption is withdrawn, the total requirement of CRR and SLR will be around Rs 25,000 crore. This figure in the sixth year is totally unattainable. So, if it is allowed to do so (enjoy the exemption), the bank may vanish because it will not be able to meet its obligations," the unions had said while giving evidence before the Committee.

The Standing Committee, on its part, had suggested that the problem could be tackled by an aggressive approach to recovery of non-performing assets. "Such a huge amount (Rs 25,000 crore) may not be attainable by a new bank. Hence the Committee recommends to the Government to impress upon the management of IDBI to make concerted efforts to realise the NPAs which has grown to the alarming sun of Rs 15,000 crore," the panel had said.

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