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RBI wants Madhavpura Bank board replaced

The Reserve Bank of India (RBI) on Thursday said it has asked the government of Gujarat to appoint an administrator to replace the board of directors of a troubled bank in Gujarat.

The Madhavpura Mercantile Cooperative Bank, which has its headquarters in Ahmedabad, is reported to be facing liquidity problems after excessive lending to share markets.

Media reports say branches of the bank, which has a deposit base of Rs 22 billion, have not opened in the past two days after depositors withdrew Rs 650 million on Monday.

"We have written to the Gujarat government for supersession of the bank's board and appoint an administrator," Y V Reddy, deputy governor of the Reserve Bank of India, told reporters on the sidelines of a bankers' meet.

"We will render all help to the administrator."

The RBI on Tuesday directed the bank to stop operations.

Reddy did not specify whether a central bank inspection team sent to Ahmedabad had found any irregularities in the bank's transactions, but added that other cooperative banks in Gujarat were not facing problems.

"I can assure you that liquidity both among commercial banks and cooperative banks is comfortable," Reddy said.

Media reports had said depositors in many cooperative banks in Gujarat had panicked and were withdrawing heavy amounts on fears that they had lent excessively to share brokers.

A global stock market meltdown, fears of a payment crisis on domestic bourses and allegations of insider trading have sent Indian shares tumbling in the past two weeks.

The benchmark Sensex has lost about 15 per cent from its post-budget high of 4386.98 points.

Concerns have been expressed in the media that some banks may have flouted the RBI's rules on exposure to capital markets and could face heavy losses if share prices do not recover.

No bank flouted limits

Reddy said no commercial bank had exceeded its capital market exposure limits.

The central bank in October eased limits on banks' investments to the capital market and allowed them to invest up to 5 per cent of their total outstanding loans as on March 31 in shares, convertible debentures and units of mutual funds.

The central bank has directed select commercial banks to submit data on their exposure in the country's stock markets for review by a technical panel set up by RBI and markets regulator Sebi.

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