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March 28, 2001
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Money > Business Headlines > Report March 28, 2001 |
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PSU banks take Rs 3.5 bn hit in Madhavpura Bank: BSTamal Bandyopadhyay A string of public sector banks, which had discounted pay orders issued by the Madhavpura Mercantile Cooperative Bank Ltd, is set to take a hit of over Rs 3.50 billion, as the pay orders have bounced. According to highly placed sources, the pay orders sent for clearing around March 8-9-just before the run on the Ahmedabad-based cooperative bank-were sent back to the public sector banks last week days after these banks released the money. Typically, since a pay order is considered as good as cash, commercial banks would discount them (release money to the payee's account) without waiting for clearance. Collecting the proceeds on the instrument is then the responsibility of the discounting bank. These banks are insisting on the clearance of these discounted instruments without further delay but the Reserve Bank of India has advised them to adopt a wait and watch policy as the central bank feels at this point of time Madhavpura Cooperative Bank is not in a position to honour these instruments. The cooperative bank has over 100 per cent credit deposit ratio and its advance portfolio is pegged at over Rs 18 billion against a deposit base of Rs 15 billion, sources said. It has also created assets backed by borrowings from the overnight call market. Some of the pubic sector banks as well two new private banks which have lent overnight money to the bank also set to take a hit close to Rs 1 billion. If the RBI is not able to sort out the problem over the next few days, the bottomlines of some of these banks will be severely hit as the financial year draws to a close. "The instruments were returned after 10 days by which time the money was released. It is a failure of the clearing operations," said a senior banker. RBI, however, feels the PSU banks, which have discounted the bills will not end up being saddled with loss assets as they are backed by adequate collaterals. "However, it will take time to realise the money," sources said.
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