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Govt may merge Benares Bank with a PSU bank

K Ram Kumar

The central government is toying with the idea of merging the insolvent Benares State Bank Ltd with a healthy and well performing public sector bank. This move assumes significance in view of the assembly elections slated to be held in Uttar Pradesh around March next year.

The Centre is unlikely to allow the bank, which has 105 branches across the country, to go under in view of the political ramifications involved for the ruling party in UP, well-placed sources said.

They further pointed out that with the ruling party's electoral fortunes in UP looking bleak as estimated by the Intelligence Bureau, both the Prime Minister's Office and the finance ministry are pushing for a merger. In fact, the Maharaja of Varanasi is understood to have met the Reserve Bank of India brass recently to discuss the future course of action including reviving the bank.

If the Benares State Bank is merged with a public sector bank, it will be the fourth such instance of an old private sector bank from UP being merged with a state-owned bank. Over the last couple of decades, the Hindustan Commercial Bank was merged with Punjab National Bank, Kashinath State Bank Ltd with the State Bank of India and the Bareilley Corporation Bank with the Bank of Baroda.

The Reserve Bank had on September 25, 2001 issued a directive against BSBL under Section 35A of the Banking Regulation Act after the private sector bank banning withdrawal of deposits over Rs 1,000.

The RBI later on partially modified its earlier directive on BSBL. The modified directive permits depositors to withdraw up to Rs. 2,500 from savings bank or current account or any other deposit account.

Depositors who have already withdrawn Rs 1,000 under the earlier directive will now be permitted to withdraw an additional Rs 1,500.

On a authorised capital of Rs 1.20 billion, the bank has a paid up capital of Rs 620 million which has been wiped out by accumulated losses of Rs 799.6 million in fiscal 2001. It had posted a net loss of Rs 133.8 million last year.

For the year ended March 31, 2001, it had a deposit base of Rs 10,32 billion. It has over 105 branches across the country. Its capital adequacy ratio has been negative for quite some time now and net non performing assets.

The Maharaja of Benares was one of the chief promoters of the bank. In 1964, the Bareilley Bank Ltd with seven branches was merged with The Benares State Bank. It also took over the Lucknow Bank Ltd in 1968.

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