For a breather

New Delhi, April 18: The cabinet today approved the proposal to write off accumulated losses of the United Bank of India (UBI) of Rs 278.44 crore, paving the way for a possible IPO. The proposal, however, does not involve any financial outgo since it is a technical write-off.

?The cabinet approved the write-off of accumulated losses of the United Bank of India amounting to Rs 278.44 crore against the capital of Rs 1,810.87 crore with effect from March 31, 2006,? science and technology minister Kapil Sibal said here.

The bank will return equity share capital of around Rs 700 crore to the government and convert a portion of the remaining equity share capital of around Rs 832.43 crore into preference shares. ?The exact amount of the portion to be converted will be decided after consulting UBI and the Reserve Bank of India,? Sibal said.

The decision to write off accumulated losses will strengthen the balance sheet of the bank, facilitating its migration to the Basel-II regime.

Sibal said the decision would help create Investment Fluctuation Reserve (IFR) according to RBI guidelines and assist the bank in meeting future capital requirements through an IPO.

The move will also promote relationships with foreign banks, instill confidence among future investors and help in expansion.

The government had earlier allowed 13 banks to write off their accumulated losses against their share capital. These banks are: Punjab National Bank, Punjab and Sind Bank, Dena Bank, Bank of India, Allahabad Bank, Indian Overseas Bank, Canara Bank, Andhra Bank, Bank of Maharashtra, Syndicate Bank, Vijaya Bank, Central Bank of India and Uco Bank.

?This was done to enable them to write off their accumulated losses against capital, when these banks were fully owned by the government,? Sibal said.

Public sector banks will have to raise additional capital of Rs 100,000 crore over the next five years to meet the burgeoning demand for credit and the capital adequacy norms under Basel-II, which will take effect from next fiscal.

Basel?II makes lending by banks more risk sensitive. Banks will have to make adequate provisions for capital not only for credit risk and market risk but also for concentration risks and liquidity risks.

Aviation pact with US

The cabinet today gave the green signal to signing an ?umbrella agreement? with the US in civil aviation infrastructure.

The proposed agreement envisages assistance by the US Federal Aviation Authority (FAA) in policy-making, procedures for training and installation of equipment.

Specific areas of support include choosing aviation and air navigation equipment, developing safety standards for helicopter operations and creating norms for certification of airports.

The agreement will have enabling provisions to seek specific assistance from the FAA.

The aviation ministry approved the draft agreement after consulting the directorate general of civil aviation, Airports Authority of India, Hindustan Aeronautics Ltd, and Indian Space Research Organisation.