Search the Internet          Tips  Sites: Finance, Investment

State Bank of India hit by cooperative bank troubles

India's largest commercial bank, the State Bank of India (SBI), said on Saturday it had been hit by the financial woes of a cooperative bank specialising in bullion trading.

The bank pegged its exposure at Rs 395.7 million ($8.48 million) after it sold bullion to a gold trader whose cheques drawn on the Ahmedabad-based Classic Cooperative Bank bounced.

Earlier, the Reserve Bank of India (RBI) said cheques issued by the Classic Cooperative Bank on behalf of a gold trader to four commercial banks had bounced.

Those banks were the SBI, Bank of India, Punjab National Bank and Standard Chartered Bank and the Reserve Bank of India said their exposure totalled Rs 696 million.

SBI, however, said it did not have any exposure to another troubled cooperative bank, based in Ahmedabad or to stock brokers being investigated by police.

"The bank has no exposure to Madhavpura Mercantile Cooperative Bank or any of the stock brokers whose names have been referred to in recent press reports or on account of discount of bankers' cheques of cooperative banks," it said in a statement.

State-run Bank of India said on Thursday it had suffered a Rs 1.37 billion loss after cheques issued by Madhavpura Mercantile Bank on behalf of a stock broker bounced.

RBI placed the operations of Ahmedabad-based Madhavpura Mercantile under an administrator two weeks ago after the payment problems emerged.

The RBI has said a few other cooperative banks like Classic Cooperative Bank and Lucknow-based City Cooperative Bank have been facing a liquidity crunch apparently due to excess exposure to share markets.

The 30-share Bombay benchmark index plunged nearly 4 per cent on Friday after tumbling nearly 14 per cent since the start of March.

Another state-run bank Punjab National Bank also said it could lose Rs 100 million due to the problems plaguing the Madhavpura Mercantile Bank.

On Friday, federal police arrested Ketan Parekh, known as the "Bombay Bull", after the Bank of India lodged a complaint with the Central Bureau of Investigation (CBI).

The CBI said it had arrested Parekh under sections of the criminal code dealing with fraud and corruption. Police have up to 60 days to lay charges against him.

A police spokesman said police were still investigating the alleged fraud, saying the sum involved could rise to around Rs 8 billion ($172 million).

Tell us what you think of this report