`We oppose payment of premium to the shareholders by a public sector bank and there ought to be no bailout using public money.'

M Ramesh

Chennai, Sept. 15

The All India Bank Employees' Association (AIBEA) has said it would oppose the move by IDBI to take over United Western Bank paying Rs 28 for each UWB share "out of public money". The association has called for a "thorough probe" into why the bank failed.

"AIBEA wrote to the RBI two years ago about the loan given (by United Western Bank) to the Makharia family for buying shares in the bank. There was no reply from the RBI," AIBEA's General Secretary, Mr C H Venkatachalam, told

Business Line

on Thursday.

(That the Makharia family was given loans by the bank to purchase shares in the bank has been acknowledged by the RBI as an "irregularity". Imposing a fine of Rs 10 lakh on the bank on May 30, 1998, the RBI said that the credit facility granted to a Makharia group company was done "for the sole purpose of enabling Makharia group of companies to subscribe to the rights issue of the bank and LC facility was provided with a view to prevent the Makharia group company's account turning into NPAs.")

Mr Venkatachalam pointed out that the RBI had merely fined UWB Rs 10 lakh, when there was a gross irregularity in lending.

Criticising the regulator for not acting in time, Mr Venkatachalam said, "they (RBI) are experts in giving death certificates".

He said that AIBEA opposed payment of premium to the shareholders by a public sector bank. "Why should there be a premium on inefficiency?" he asked. He observed that risk of failure was inherent in equity investment and there ought to be no bailout using public money.

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(This article was published in the Business Line print edition dated September 16, 2006)
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