Sbi Seeks Rs 62-Crore Compensation From Rbi Over Kashinath Bank
State Bank of India (SBI) is negotiating with the Reserve Bank of India (RBI) to provide them with compensation for the takeover of the Kashinath State Bank (KSB) on account of the Rs 62 crore loss which it had incurred.
In a similar development, the SBI has also requested to the finance ministry not to impose on them any further takeovers of this kind. It may be recalled that SBI was instructed by the government and the finance ministry in 1995 to take over Kashinath State Bank, the Utter Pradesh-based scheduled commercial bank, which was to be liquidated subsequently.
The UP-based bank had 30 branches with 500 employees and SBI had been instructed by the RBI not to retrench the KSBs employees. The RBI could have decided to approach the Deposit Insurance Guarantee Corp-oration for paying the liabilities of the bank (i.e the deposits). However, it did not want to retrench the employees and thus imposed the takeover on SBI, said sources. Later, the SBI closed and also merged some of them the KSB branches and now only 12 of the banks branches are operational. But during this takeover process, SBI suffered a heavy loss due to the poor quality of the banks assets.
Although at present no logical or concrete solution has emerged on the compensation package, the apex bank and the SBI are toying with several alternative approaches to this issue, said RBI sources. Among the options discussed by the two, one was the switchover of gilts between SBI and RBI. Here, RBI would purchase from SBI low coupon government securities in return for high coupon govt securities at their respective book values.
However, this could not materialise since there is no such provision under the RBI Act for exchanging the securities. The other alternative compensating the loss was by making straight payment by way of government securities. But the rate and the maturity of the gilt would have to be yet decided. Sources said that government and the finance ministry has in past imposed several takeovers such as Bank of Bihar and Bank of Kochin but none of these takeover lead to such huge losses as in case of KSB for SBI.