Uncertainty prevails over the fate of deposits made by about 60 co-operative banks in the beleaguered Madhavpura Mercantile Co-operative Bank.
These banks have made a total deposit of around Rs 500 crore (Rs 5 billion) in the MMCB and the three-year period given for revival of the bank expires on August 24.
While there are all possibilities that the time will be extended and deposits carried forward, these 60 banks might face a liquidity crunch as the recovery process is not very fast.
Various co-operative banks have deposited huge amounts in Madhavpura Bank, receiving commission and interest on the deposits.
However, with the bank going bust, these banks are finding it difficult to recover their dues from MMCB. The beleaguered bank was supposed to pay back the deposits of these banks by August this year, according to the revival package that was designed for MMCB.
Even as it is clear that MMCB will not be able to repay public deposits by August 24, 2004, the Gujarat Urban Co-operative Banks' Federation has proposed certain changes in the revival package of the bank.
The federation vice chairman R S Patel said they have urged the Reserve Bank of India and the Central Registrar of Co-operatives that after August 24, MMCB should be allowed to extend the date by three years and should be allowed to pay back the deposits at four per cent interest.
The federation has also demanded that on the deposits that the banks have with MMCB, the interest applicable must be three per cent.
The federation has also recommended that the revised revival package must be pegged at Rs 600 crore (Rs 6 billion) instead of Rs 800 crore (Rs 8 billion), as the bank at present has Rs 325 crore (Rs 3.25 billion) collected through recoveries.
MMCB chairman Jairambhai Patel said, "We have represented the matter to the state and the central governments and it is up to them to decide on the revised revival package. All efforts are on to recover dues from defaulters."
The Reserve Bank of India suspended MMCB from clearing house operations in March 2001 after a preliminary inquiry revealed that the bank was facing a major liquidity crunch and was in the eye of a pay order scam involving Ketan Parikh.
Parikh, who is expected to pay back Rs 380 crore (Rs 3.8 billion) to the bank, has so far paid just Rs 22 crore (Rs 220 million).
The bank was established on October 10, 1968, and received the scheduled bank status in the 90s, which allowed it to expand its banking operations and start lending to stockbrokers.MMCB faced its worst crisis on March 8, 2001, when panicky depositors 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 liquidity.