MSC Bank to get refinance from Nabard

The Maharashtra government has taken steps to enable the Maharashtra State Cooperative Bank (MSC Bank) get refinance of up to Rs 2,160 crore for agricultural loans for 2011-12 from the National Bank for Agriculture & Rural Development (Nabard).

The state government has sought the Reserve Bank of India’s (RBI’s) intervention to exempt MSC Bank from section 11 of the Banking Regulation Act, as the lender’s net worth turned positive to Rs 238.14 crore as on March 31, against a negative Rs 144.22 crore a year ago.

Section 11 of the Act exempts any cooperative bank from continuing its business if its net worth is less than Rs 1 lakh.

“We do not see any problem in MSC Bank getting refinance from Nabard for 2011-12 as the bank’s net worth is positive. Necessary action has already been initiated by the state government for exempting MSC Bank from section 11. This means the bank’s net worth is not less than Rs 1 lakh but it has turned positive as per the balance sheet of 2010-11 and, therefore, RBI is expected to accept our request and give its approval for MSC Bank to avail of the refinance from Nabard,” a state government official, who did not want to be identified, told Business Standard.

The state government has superceded MSC Bank’s board of directors by appointing two administrators. The commissioner of cooperative societies on the advice of RBI had superceded the bank on account of negative net worth as per the balance sheet of 2009-10.

The official informed that annual limit for refinance is Rs 2,160 crore for MSC Bank. During 2010-11, MSC Bank had provided a total loan of Rs 3,300 crore to district central cooperative banks for agricultural loan purpose. Of this, MSC Bank disbursed Rs 1,200 crore from its own funds. Nabard sources declined to comment.

The government official reiterated that the MSC Bank was no longer under section 11 and thus was fully entitled for refinance from Nabard.

As reported by this paper recently, MSC Bank’s balance sheet for 2010-11, which is yet to be assessed by the statutory auditors, has clearly shown that the bank’s networth has turned positive to Rs 238.14 crore, its net interest margin increased to Rs 243.30 crore from Rs 100.15 crore in 2009-10. The bank had earned an operative profit of Rs 15.82 crore while its net loss was reduced to Rs 506.43 crore from Rs 775.98 crore.