Co-op banks told to write MMCB deposits off

Move likely to spell doom for several urban co-operative banks.

The Reserve Bank of India (RBI) has told urban co-operative banks that have deposits with the ailing Madhavpura Mercantile Cooperative Bank to classify them as non-performing assets (NPAs). This could effectively close down several of these banks.

The move signals the RBI is in no mood to extend the revival process of Madhavpura Mercantile Cooperative Bank. The RBI circular issued on July 21 states the bank has miserably failed to implement the scheme of reconstruction that is due to expire in August.

"In view of the poor progress of the scheme of reconstruction framed for the MMCB (Madhavpura Mercantile Cooperative Bank), it is advised that the deposits with MMCB may be treated as non-performing assets. You (the banks) may, therefore, make necessary provision for the same as on March 31, 2005. You are advised to submit to us, latest by July 31, 2004, the particulars of your deposits with MMCB and the position of capital adequacy."

The circular also asked the urban co-operative banks to assess the impact of classifying their deposits as NPAs and to furnish a time-bound plan to attain the prescribed capital adequacy ratio by the end of 2004-05. The circular was signed by R Subramanian, deputy general manager of the Urban Banks Department, RBI.

Jairam Patel, chairman of Madhavpura Mercantile Cooperative Bank, said his bank had conveyed to the RBI about the slow recovery of debts, mainly from Ketan Parekh, who owes over Rs 1,000 crore of the Rs 2,200 crore outstanding.

"We have recovered around Rs 250 crore and attempts are being made. But now things look uncertain with this new circular, which will affect at least 160 urban co-operative banks that have fixed deposits worth Rs 635 crore with Madhavpura Mercantile Cooperative Bank," Patel added.

The urban cooperative banks said they would challenge the RBI circular. "We have been hoping against hope to get our deposits back though that could have taken a few years. But now the directive to write off the money lying with Madhavpura Mercantile Cooperative Bank means sure closure of our bank. We are yet to receive this circular and may take it to court," said a director of a leading urban co-operative banks based in Saurashtra.

"This circular will act as the last nail in the coffin of the co-operative bank movement in Gujarat and other states. In fact, we were planning to take up the matter of the revival of Madhavpura Mercantile Cooperative Bank with Chief Minister Narendra Modi next week. This circular will lead to the death of over 100 urban co-operative banks," Jitendra Shah, president of the Nav Gujarat Bank Customers' Protection Council, said.