25 Co-Op Banks Flouted Broker Loan Norms

Twenty-five urban cooperative banks (UCBs) lent funds to stockbrokers in violation of the Reserve Bank of India (RBI) norms, said the central bank in its reply to Joint Parliamentary Committee on the latest financial sector scam.

The list includes Madahvpura Mercantile Cooperative Bank (MMCB), Abhyudaya Cooperative Bank, Bombay Mercantile Cooperative Bank, City Cooperative Bank, Janata Cooperative Bank and Rupee Cooperative Bank among others.

The central bank, however, found that it is only the MMCB which only had a substantial exposure to the stock brokers.

The exposure of the MMCB to the share-brokers and their associates its stands at Rs 1,082.22 crore -- 68 per cent of its total loans and advances outstanding as on March 24, 2001.

Besides lending funds to the brokers, two UCBs -- Classic Cooperative Bank and City Cooperative Bank -- were found to invest in shares and bonds of corporates in violation of norm.

Classic Cooperative had financed public issue of Cinevista to 60 borrowers amounting to Rs 38 lakh.

The cooperative bank is also accused of lending Rs 110 lakh to H Nyalcahand Financial Services Ltd.

According to the central bank, the money was used to meet the margin money requirement of the 60 borrowers. City Cooperative Bank have been found to have invested Rs 4.5 crore in the bonds of Cyberspace Infosys Ltd.

UCBs were allowed to lend against shares to the individuals up to Rs 10 lakh in case of shares are in physical form and Rs 20 lakh in case of demat shares till April 19, 2001, but were not permitted to take any exposure to the brokers or invest in bonds and shares of the banks.

The RBI, however, barred the UCBs to take any exposure to the stock market, even in the form of loans against share, from April 19 this year. It has also asked the UCBs to recall advances to the stock brokers and direct investments made in shares.