The Hindu Business Line : IBA favours corporatisation of PSBs

`If the first option of corporatisation to facilitate consolidation is not acceptable, certain amendments such as modifying the definition of a banking institution to include regional rural banks can be carried out.'

Mumbai , Nov. 1

THE Indian Banks Association (IBA) has suggested the `corporatisation' of public sector banks to simplify the process of consolidation, in its report on the `Consolidation in Indian Banking System'— legal, regulatory and other issues.

IBA has stressed "Considering the complexities involved in consolidation on account of requirement of complying with various laws, corporatisation appears to be a preferable option." It will also help implement the recommendations of the Narasimham Committee within a couple of years, IBA has observed.

However, the association has said that if the first option of corporatisation is not acceptable, certain amendments such as modifying the definition of a banking institution to include regional rural banks can be carried out. Such an amendment would facilitate mergers of any banking institutions by the Central Government by framing a scheme under the Bank Nationalisation Acts.

The applicability of other statutory provisions, if one of the merging entities is governed by other laws,needs to be further elaborated.

State Bank of India (SBI) has the power to acquire business of any individual, association of individuals, department of the Government or a separate institution engaged in banking business. A similar power is conferred on SBI's subsidiaries.

However, the provisions contained in Section 35 and Section 38 of the State Bank of India Act and State Bank of India (Subsidiary Banks) Act respectively, do not specifically extend to acquisition of the business of a public sector bank or SBI's subsidiary or a banking company or a regional rural bank.

It has been suggested that to facilitate consolidation, it is necessary to expand the definition of a banking institution contained in the State Bank of India Act and the State Bank of India (Subsidiary Banks) Act to include the public sector banks, SBI and its subsidiaries, banking companies and regional rural banks.

Such an amendment would facilitate mergers of such category of banks with SBI or any of its subsidiaries.

An amendment in the Section 72 A of the Income Tax Act has been recommended to extend the available benefits of the set-off of accumulated losses and unabsorbed depreciation to all amalgamations.

IBA has added that there are other HR issues, rationalisation of branch networks and issues relating to application of banking technology, which will have to be separately debated and addressed, for the process of consolidation to take place smoothly.

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