Rediff Logo
Channels: Astrology | Broadband | Contests | E-cards | Money | Movies | Romance | Search | Weather | Wedding | Women
Partner Channels: Auctions | Auto | Bill Pay | IT Education | Jobs | Lifestyle | Technology | Travel
Home > Money > Reuters > Report
April 04, 2001
  Money Matters

 -  Business Special
 -  Business Headlines
 -  Corporate Headlines
 -  Columns
 -  IPO Center
 -  Message Boards
 -  Mutual Funds
 -  Personal Finance
 -  Stocks
 -  Tutorials
 -  Search rediff


 Search the Internet
 Sites: Finance, Investment
E-Mail this report to a friend
Print this page

Madhavpura Bank lent Rs 10 billion to brokers

The troubled Madhavpura Mercantile Cooperative Bank, currently in danger of being liquidated due to its heavy exposure to the slumping stock market, clearly violated central bank norms on lending, according to a Reserve Bank of India (RBI) report.

"The Madhavpura Mercantile Cooperative Bank has clearly violated norms. The RBI has forwarded its inspection report to the Central Bureau of Investigation (CBI)," an official closely linked to the central bank's probe of the bank said.

The RBI launched a probe into Madhavpura's operations last month following a run on its deposits after panicky depositors began withdrawing money on reports it had lent heavily in capital markets and these loans had turned sticky due to a steep fall in share prices over the past month.

The 30-share benchmark Bombay index has lost nearly 15 per cent since the end of February.

The official said the bank had lent about Rs 10 billion to the equity market, of which more than 75 per cent was to arrested stock broker Ketan Parekh, known as the "Bombay Bull", and his companies.

The federal CBI arrested Parekh on Friday after state-owned Bank of India (BOI) said it was defrauded of nearly $30 million when pay orders issued on his behalf by Madhavpura Bank bounced.

A police spokesman had said the sum involved could rise.

The police agency said it had arrested Parekh under sections of the criminal code dealing with fraud and corruption.

No charges have been made. Under Indian law, federal police have up to 60 days to file charges.


The central bank suspended Madhavpura Bank's board on March 12 and placed it under an administrator.

A RBI official said co-operative banks are allowed to lend a maximum of Rs 1 million against shares which have share scrips and two million against paperless shares held in the electronic form.

Co-operative banks are not allowed to invest in shares.

Madhavpura Bank had deposits of over Rs 10.56 billion at the end of 1999/2000 (April-March), mostly from small depositors and district urban co-operative banks.


Central bank officials said the liquidation of the Madhavpura Cooperative Bank was one of the options being considered to pay off its 100,000 depositors.

The founder-chairman of the bank, Ramesh Parekh, is not traceable and the RBI has lodged a complaint with the Ahmedabad police and filed a criminal suit in a local court against him.

RBI officials said the bank was held back in taking quick action against Madhavpura as it can only audit and inspect cooperative banks and has to recommend action to the Registrar of Cooperative Societies.

The Registrar reports to the state government.

Back to top
(c) Copyright 2000 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Tell us what you think of this report