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Rediff.com  » Business » MMCB revival package draws flak

MMCB revival package draws flak

June 08, 2004 11:06 IST

Disgruntlement is brewing among depositors of the banks that have loaned money to the beleaguered Madhavpura Mercantile Co-operative Bank as the proposed revival package for the bank means that the loans will be repaid at a rate much lower than what was agreed upon earlier.

The body of depositors says it amounts to injustice to depositors as the loans are given from their money. Others say the directors of the banks that have loaned money to MMCB cannot agree for a reduction in the interest rate for repayment without taking depositors into confidence.

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In May, a team of the management of MMCB met officials of the Reserve Bank of India and the Central Registrar of Co-operatives in Delhi to seek permission to reduce the interest rate of loans payable to various banks and financial institutions from 7.5 per cent to 4 per cent.

The team included MMCB chief executive officer B K R Maruthy, Jyotindra Mehta, chairman of Rajkot Nagarik Co-operative Bank, R C Padiya, chief executive of Gujarat State Co-operative Bank, and R S Patel, director of MMCB.

Kishorebhai Ghiya, managing director of the Rajkot-based Shri Parshwanath Co-operative Bank, the smallest co-operative bank in the state, said, "Directors of banks that have loaned money to MMCB are trustees. They need to take the permission of the board and the also the depositors before agreeing to a reduction in interest rates. After all, it is the money of depositors."

He said it appeared as if the interests of banks that have loaned money to MMCB have not been safeguarded in the proposal.

MMCB is supposed to pay an interest of 8 per cent on public deposits of Rs 200 crore (Rs 2 billion) and 7.5 per cent to banks and other financial institutions for a total deposit of around Rs 800 crore (Rs 8 billion).

MMCB expects to receive Rs 380 crore (Rs 3.8 billion) as committed by Ketan Parikh to be paid by August 24 this year. The bank was to pay depositors Rs 200 crore in August 2002, but got RBI nod for an extension of two years and the extension period expires on August this year, but the bank is not in a position to pay back.

Prakash Gurjar, president of the All Gujarat Co-operative Banks Depositors' and Account Holders' Association, said the proposal was unfair to the depositors.

"In either case, the revival of MMCB in the next two years does not seem quite possible. In such a scenario, the directors of the banks that have loaned money to MMCB need to safeguard the interests of their own depositors," he said.

Madhavpura Mercantile Co-operative Bank ran into rough weather in March 2001 as the Reserve Bank of India withdrew it from the clearing-house after a preliminary inquiry revealed that the bank was facing a major liquidity crunch and was in the eye of the pay order scam involving Ketan Parikh.

It faced its worst crisis on March 8, 2001, when the depositors panicked and started withdrawing money from the bank following reports that the bank had given a huge bank guarantee to Ketan Parikh and as a result the bank was left with very little cash.

The crisis forced the RBI to step in and take some action to limit the damage.

An inquiry by the RBI showed that the bank had a severe liquidity crisis. The RBI recommended the registrar of co-operative banks to supercede the board of the bank. At present, MMCB has to repay depositors Rs 200 crore and Rs 800 crore to other banks.

Jyotindra Mehta, chairman of Rajkot Nagarik Co-operative Bank, which has loaned out around Rs 50 crore (Rs 500 million) to MMCB, however, said the interest reduction is still just a proposal put forth before the RBI and central registrar of co-operatives.

"While it is true that this will amount to an injustice to depositors, if MMCB is not revived, then the bank will have to forfeit the entire amount given as loans. The permission of shareholders and depositors will be taken as and when needed," he said.
Meghdoot Sharon in Ahmedabad