The Cabinet on Wednesday approved the amalgamation of Nedungadi Bank with Punjab National Bank, and allowed the Shipping Corporation of India to exit Greenfield Ltd, a liquefied natural gas transportation joint venture in which the company holds 20 per cent equity.

PNB had offered to take over the beleaguered private bank to expand its business in Kerala. In order to safeguard the interests of Nedungadi Bank's customers, the government decided to clear the amalgamation scheme under Section 45 of the Banking Regulation Act, 1949, an official spokesman told reporters.

The Reserve Bank of India, which was monitoring the performance of Nedungadi Bank, found it would require Rs 125 crore  (Rs 1.25 billion) to increase the bank's capital adequacy ratio to 9 per cent and keep it solvent, the official said.

Despite posting a net profit of Rs 1.27 crore  (Rs 12.7 million) in 2002, the Kozhikode-based bank's accumulated losses stood at Rs 65.48 crore  (Rs 654.8 million). The bank's gross non-performing assets stood at 46.57 per cent, while net non-performing assets were at 31.05 per cent.

"There is remote possibility of the bank generating sufficient profit to wipe out the accumulated losses and to meet the capital adequacy requirements within a short time. The only option available to safeguard the interests of depositors was to amalgamate the bank with a nationalised bank," the official said, adding that the RBI had recommended the compulsory merger of Nedungadi Bank with PNB in October 2002.

The Cabinet also ratified two amendments to the Montreal Protocol on ozone-depleting substances.

The ratification of the Copenhagen and Montreal amendments would reiterate India's commitment to the Montreal protocol and facilitate technology transfer and funding of projects using hydro-chloro-fluro-carbons and methyl bromide, the spokesman said.