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P. Devarajan

THE Finance Ministry, RBI and Nabard have jointly revived the idea of writing off losses of well over Rs 6,000 crore held by the co-operative credit system.

Going by talk on the Mint Street, the template for the grand idea is the Capoor Committee report on the co-operative credit structure. In a short while, the plan which has the backing of the Planning Commission, will go to the Cabinet which is expected to pass it in double quick time as there could not be a better financial aid for politicians months ahead of the general elections.

With the books clean, the co-operative credit system can lend fresh funds to politicians masked as project loans (the best recent case being cheap credit for the sugar units in Maharashtra) and wait for a second bailout 10 years hence. The Budget has made no provision, but that need not stop it from offering long-tenor, recap bonds instead of cash, with the co-op banks earning a little by way interest income.

"Not all co-op banks will get help. Only the better ones with potential to stay fit will be looked at,'' says a banker and the Capoor Committee says as much. The Committee wanted the shareholders, State and Central governments to bring in funds; 20 per cent of the aggregate requirement for rehabilitation of the co-operative banks is to be contributed by the members as additional share capital with States and the Centre bringing in 40 per cent each.

There is also the insistence on scrapping the dual regulatory structure in favour of the RBI. "The Task Force is of the view that the initiative should be taken only in those States which take appropriate legislative measures in order to ensure elimination of duality of control over co-operative banks and to place them fully under the purview of the Banking Regulation Act 1949,'' says the Capoor Report.

Will these conditions be sewn into the bailout being planned? Some bankers are not overly upset as the public sector banks over the last 10 years have digested some Rs 30,000 crore of tax funds to show off their strength. As there will not be any cash outgo (except for the interest payments), the recap bonds will not place any immediate pressure on Centre's finances.

Bankers are not sure whether the Finance Ministry has made up its mind on a second VRS. Bank managements are keen as it could take out labour force slightly ahead of the complete networking of branches. "No bank can take on the financial load of introducing new technology and also keep on the rolls a huge labour force,'' says a bank chairman.

The first VRS was a reckless affair with no personnel policy put in place by the bank boards. Perhaps, the Finance Ministry does not want the second VRS to be yet another bizarre affair. Yet officers below the level of General Managers are keen on quitting if the Government okays a second VRS.

Second time round, bank managements are insisting on total freedom to shrink the muster.

For Mr Jaswant Singh, who is yet to hold any talks with bank chairmen on any subject, the issue seems to be unimportant.

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