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The Verma panel has recommended that a special wing should be set up within the Reserve Bank of India (RBI) to regulate and supervise the three weak banks.

This is one among a number of recommendations made by the panel which calls for applying a different set of regulations to weak banks.

The panel has said that on a number of issues such as deposit insurance, regulation of subsidiaries, risk management, disclosures and regulatory compliance, the treatment of weak banks will have to be different from those of much stronger normal banks. This arrangement would also help early detection of and attention towards weaknesses emerging in other banks, pre-empting a system-wide spread of their problems.

 

The report has suggested relaxing priority sector lending and hiking the capital adequacy ratio by one percentage for weak banks.

The Verma committee has also recommended that priority sector norms for weak banks should be relaxed for a period five years. The report points out that United Bank of India's priority sector portfolio has non-performing asset (NPA) levels in excess of 50 per cent and accounts for 60 per cent of it's total NPA's.

The panel has also made suggestions on the capital adequacy ratio (CAR) of weak banks stating that it should be one per cent higher than other strong banks. The panel had also recommended setting up of a Financial Regulatory Authority (FRA) for regulating operations of weak banks.

It has also suggested setting up an Asset Restructuring Fund (ARF) which would require a capital of Rs 1000 crore, in order to hive off the non performing asset from the books of the weak banks. The NPAs of Indian Bank, Uco Bank and United bank together amount to Rs 6,974 crore as on March end 1999.

The panel in its report has said that for effective follow-up and recovery of assets acquired, the ARF should focus on comprehensively large NPAs of greater than 50 lakh. Such NPA of the three bank aggregate to Rs 3336 crore.