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April 26, 2002 | 1245 IST
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Panel says give no leeway to new pvt banks on stake-cut

BS Economy Bureau

The parliamentary standing committee on finance has said promoters of new private sector banks should not be given any extension in reducing their holding to 40 per cent as the very purpose of such a stipulation may be lost.

The committee has recommended that in future, the RBI should formulate such norms after consultation with other regulatory bodies to ensure that the policies are "pragmatic" and do not leave any scope for extensions and exemptions.

In its report tabled in Parliament earlier this week, the standing committee criticised the stand of the government and the Reserve Bank of India that some promoters of new private sector banks did not reduce their holding to the stipulated level as they had comfortable capital adequacy ratios and profitable operations since the commencement of business.

The committee, chaired by N Janardhana Reddy, also expressed concern over the high level of SLR investments by public sector banks.

"The committee is of the view that the propensity of public sector banks to invest huge amounts of excess money in gilts is due to the fear of incurring non-performing assets. However, the panel feels that risk bearing is inherent to the banking business and, with the right kind of policies and attitude of bankers, such risk may be minimised if not eliminated/ avoided altogether," the report said.

The standing committee also took serious note of the fact that Centurion Bank, Nedungadi Bank and Benares State Bank, which fell short of their stipulated agriculture sector lending levels, had defaulted on depositing their share of the shortfall to the Rural Infrastructure Development Fund. The banks also do not have the specified 25 per cent branches in rural areas.

The committee said that in case the banks do not comply with the norms laid down by RBI, penalty should be levied.

The panel has also expressed concern over the appointment of a promoter of a company indicted by Sebi as a director on the board of a government-controlled financial institution.

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