The panel is expected to submit the report to the Reserve Bank of India in July, the deadline for which expired on Wednesday. The six-member panel met in the city last week for a two-day session. "Every care is being taken to draft a `practical' report containing recommendations that can be implemented," sources close to the panel said. Verma, however, refused to comment.

The focus of the report will be "technology", which is the weakest point of Indian public sector banks, sources said, adding that there will be a separate chapter on the three weak banks. "The survivalof these banks depends on technology... Unless they update themselves on this front, it will be difficult for them to compete with foreign and new-generation private sector banks. The panel's report will chart out a roadmap for technology development which can be achieved over the next 18 months," sources said.

As far as the three weak banks are concerned, the panel is considering recommending some "drastic" measures. "The government cannot keep on pumping in recapitalisation funds without any conditions... These banks should be penalised if they fail to achieve the targets," sources said.

Ruling out a continuous infusion of recap funds, sources in the panel said these banks should not be allowed to offer wages beyond their means. "They are in the business of banking and not welfare bodies. The staff cost as a percentage of their net interest and other income should be on a par with the industry average," sources said.

The panel is closely looking into the staff cost (as a percentage of income) of 24public sector banks (the entire public sector banking industry minus the three weak banks) and has insisted that the median staff cost should be adhered to by the three weak banks. "In order to achieve that, these banks need to raise their net interest income as well as other income. The other option is slashing the staff cost either through a VRS or cut in wages," sources said.

The panel is also closely at the possibility of setting up asset reconstruction companies (ARCs). "However, ARCs may not be the right answer to their problems. Unless the operational efficiency is raised, merely getting rid of the non-performing assets (NPAs) through the creation of an ARC will not provide any solution to the problem of weak banks," sources said.

RBI had, in February this year, set up the panel under the chairmanship of former State Bank of India chairman MS Verma to suggest measures for the revival of weak public sector banks. Apart from Verma, the other members of the panel are Vysya Bank chairman and formerCorporation Bank chief KR Ramamurthy, chartered accountant and former president of the Institute of Chartered Accountants of India, MM Chitale, Icra managing director PK Choudhary, former RBI executive director JR Prabhu and former director of Indian Management Institute, New Delhi, Sushil Chandra.

Insight

Weak banks need to be recast

Infusing new technology into public sector banks is of course essential if they are to compete with the new private and foreign banks which have the latest technology. Banking, the world over, is an IT-intensive business.

So far as the weakest banks are concerned, the fact of the matter is that no meaningful change can be effected until and unless the banks are thoroughly restructured. This restructuring should involve downsizing of business, closing down loss-making branches, reduction of NPAs and reducing manpower and operating costs. There is no easy way out.

Aaron Chaze