Maha Co-op bank board superseded

RBI action comes after Maharashtra State Cooperative Bank failed to comply with nine out of its 11 directives

The State Registrar of Cooperative Societies, on the recommendations of Reserve Bank of India (RBI), has superseded the board of directors of Maharashtra State Cooperative (MSC) Bank. In a decision taken last evening under Section 110 (A) of the Maharashtra State Cooperative Societies Act, 1960, the cooperative societies registrar appointed two senior IAS officers — State Agriculture and Marketing Secretary S K Goyal and Planning Secretary Sudhir Shrivastav — as the apex cooperative bank’s administrators.

A senior government official, requesting anonymity, told Business Standard: “RBI has taken this action based on its own and National Bank for Agriculture & Rural Development (Nabard) reports. There were serious lapses in the bank’s functioning.”
 

MSC BANK’S LAPSES

# Showed profits of Rs 2.87 cr when it incurred losses of Rs 1,043 cr

# Despite negative net worth, several bad loan decisions taken

# Approved loans before formal communication from state govt 

# Absence of formal appraisal for loans

# Failed in speedy recovery of loans

The deposits of the bank, however, are safe as it has not been put under moratorium.

The RBI move against the bank during its centenary year has led to a major embarrassment for the ruling Congress-NCP government, especially since the majority of the 77 directors belong to the ruling alliance. MSC Bank is the apex financial cooperative institution of all other cooperative banks in the state.

Agriculture Minister Sharad Pawar expressed displeasure over RBI’s move. He said: “The bank has disbursed loans on state government’s guarantee. There has not been a recovery of such loans and that is why it’s being shown as NPA.” He, however, added that he would be able to comment on whether there were irregularities or not only after going through RBI’s communication.

At present, Ajit Pawar is on the bank’s board. The chairman of the board is Manikrao M Patil.

The action comes on the back of MSC Bank’s questionable decisions on loan disbursements and non-compliance of nine out of 11 RBI directives. Also, the bank had reported profits of Rs 2.87 crore in 2009-10. However, a report by auditors said the bank had actually incurred losses of Rs 1,043 crore. RBI’s decision is based on its own inspection and similar exercise carried out by Nabard for the financial year ended March 31, 2010.

The share of retail deposits in the bank’s total deposit base, which was around Rs 19,000 crore on September 30, 2010, is nominal at around 6 per cent. According to the bank’s website, it has close to 50 branches, with most being in Mumbai.

State government officials and Nabard confirmed RBI’s move. A Nabard official said: “Despite its negative net worth, MSC Bank had taken several loan decisions, which may not be prudent. Nabard, in its report, had asked the bank to make provisions for the same.”

Another state government official said that in some cases, even before a formal state government communication, the bank had approved the loan decisions and later disbursed the amount.

Nabard in its report, which was sent to the state government in February this year, revealed that the bank had a negative net worth of Rs 144 crore and its capital adequacy ratio was at one per cent. In addition, it had downgraded the bank from Grade B in 2008-09 to Grade D in 2009-10.

For FY10, the bank’s auditors, Joshi Nair and Associates, observed that its accounts were poorly maintained and the profit and loss account was grossly inaccurate. For FY10, its gross non-performing assets (NPA) were 20.9 per cent. However, while converting the same into net NPAs, the bank showed the figure at 7.7 per cent.

In 2004, RBI superseded the nine-member board of Mumbai-based loss-making South Indian Co-operative Bank following large scale NPAs. The bank was later merged with Saraswat Cooperative Bank.