After the Global Trust Bank episode, the government may be required to consider merging Punjab & Sind Bank with another bank.
A three-member expert committee, constituted by the Reserve Bank of India, has recommended that Punjab & Sind Bank enter into strategic alliances, like insurance and credit cards, in the first stage.
After the bank consolidates its position in a year, a merger with another bank may be considered, the committee has said in a report submitted recently to the apex bank.
The bank's board has taken the report of the committee on record. Finance ministry sources said Punjab & Sind Bank was a merger candidate.
However, it was not on the government's immediate agenda, they said. VK Chopra, chairman and managing director, Punjab & Sind Bank, said, "There is no proposal to merge the bank with any other bank at the moment."
In the first stage, the committee has suggested the bad assets be transferred to asset reconstruction companies. The bank may enter into strategic alliances in areas like insurance, it has said.
The report also suggests the setting up of a trading desk -- since the bank has virtually no treasury income -- and the computerisation of branches. The committee has recommended an investment of around Rs 100 crore (Rs 1 billion) in information technology.
The committee has noted that Punjab & Sind Bank has a good portfolio of small and farm loans along with a robust branch network. It has, however, said advances given by the bank have not been monitored and there is a high incidence of fraud.
The inspection manual of the bank has not been updated and adequate provisions for the investment fluctuation reserve have not been made. It also says that recovery of loans is tardy.
The bank has been facing problems for nearly a year since it had to seek more time from the Reserve Bank of India to finalise its accounts after auditors pointed out inadequate provisioning.
The bank's chairman and managing director, N S Gujaral, was asked to step down by the finance ministry and Sidbi chairman V K Chopra was given additional charge of the bank. The government is in the process of appointing an IAS officer to head the bank.