Panic run on Nagpur Mahila Bank

Its the turn of another cooperative bank from Nagpur to hang on the precipice and suffer a panic run.

The Nagpur Mahila Nagari Sahakari Bank Ltd is in troubled waters following adverse reports by the statutory auditors and the Maharashtra Cooperative Department alleging irregularities and recommending supersession of the bank's board.

Anxious depositors started queuing up in front of the nine branches of the bank since the morning to withdraw their deposits. A senior director of the bank desiring anonymity confirmed that there was a run on the bank.

"Depositors have withdrawn nearly Rs 5 crore in two days and this is not normal," the director said.

The bank has a total deposit base of around Rs 124 crore, but huge withdrawals are certain to affect its liquidity.

The director said that though the bank had enough funds, it could not sustain such withdrawals on a daily basis as it takes time to liquidate investments for honouring depositors' claims.

The director maintained that the management had apprised the Reserve Bank of India (RBI) and sought help in overcoming the crisis. The RBI, when contacted, said that they were monitoring the situation.

This is the second time in the past two years that cooperative banks in the region are witnessing a run. Earlier, immediately after the Madhavpura tangle, the Nagpur Nagrik Sahakari Bank Ltd which had parked huge sums with Madhavpura found itself in a soup and then the Nagpur District Central Cooperative Bank Ltd (NDCCB) and four other cooperative banks were involved in the bank securities scam led by brokerage firm, Home Trade.

The Mahila Bank was in the news on account of its bad debts to the tune of over Rs 4 crore in the Hemani Group. A single account had almost doubled its non-performing assets (NPA).

As a result, the auditors classified the bank as a 'D' category bank. This means there has been a substantial deterioration in the bank's financial condition and its board is liable to be superseded by the Cooperatives Department.

In fact, alarmed by serious complaints lodged against the bank, the department had deputed assistant registrar Chaitanya Nasare for statutory inspection of the bank on January 5.

During the inspection, the working of bank's transactions, various complaints, loan cases of above Rs 10 lakh since 1995, purchase of new head office premises, expenditure on interior decoration work, purchase of computers, recruitments and bill discount cases were put under lens.

The investigations revealed that in loan case of M/s Gurudatta Infrastructure Pvt Ltd, the bank had failed to obtain the title verification and search report and loan was sanctioned on the basis of a forged sale deed.

The report had indicted the branch manager, loan officer and sanctioning authority for sanctioning a huge loan to M/s Gurudatta Infrastructure.

In case of purchase of its headquarters building, the report pointed out that neither a prior permission of the joint registrar, co-operative societies was obtained nor was the board informed.

The bank paid an excess amount of Rs 16.23 lakh to the builder for a property valued at Rs 14.58 lakh. It shelled out a total of Rs 30.82 lakh, the report stated.

The report blamed the bank officials and the board for negligence in handling funds and properties of the bank and recommended action against the responsible persons.

The report also indicted the bank officials and directors for spending a huge sum of Rs 19.85 lakh towards interior decoration of headquarters premises (in addition to the Rs 30.82 lakh spent in acquiring the property), thus taking the total investment to Rs 50.67 lakh.

All this was done without prior permission of the joint registrar of co-operative societies.

The inspection report found glaring irregularities in purchase of computers worth Rs 62.05 lakh. The report also found faults in the recruitment process of the Mahila Bank, undertaken to fill in 25 clerical posts.

The report has blamed the bank officials and directors for violating the directions given by the cooperatives department while recruiting these candidates.

In case of discounts of cheques, the report pointed out that out of a total of 376 cheques, the Dharampeth branch of Mahila Bank did not receive the amount covered by as many as 130 cheques for Rs 10,17,00,000. Out of this, a sum of Rs 4,55,86,000 was already credited in the account of the respective account holders.

The report pointed out that the cheques and bills discounting facility extended to the Hemani Group of Companies was discontinued on February 2, 2003, but surprisingly the bank had sanctioned a loan of Rs 285 lakh to the same group on May 5, 2003.

The application was received on May 3, 2003, the same date on which the bank had reportedly detected the irregularity to the tune of Rs 455.86 lakh. Yet, despite repeated defaults by the Hemani Group, a fresh loan of Rs 285 lakh was sanctioned on May 5, 2003.

In cases of loans above Rs 10 lakh, the report said that the bank liberally sanctioned huge loans to contractors and builders against primary security of real estate, in spite of instructions contrary to this practice contained in RBI circulars. This, the report maintains, shows apathy and negligence on the part of the bank's management and of the board in handling public money.

During the last 10 years, the Mahila Bank had filed 501 cases against defaulting borrowers in Co-operative Court under section 91 of the MCS Act, but the bank received only 81 Revenue Recovery Certificates (RRCs) and in 70 cases only awards were passed.

Based on this report, the cooperatives department recommended supersession of the board and appointment of an independent administrator to restore the financial health of the institution.

Meanwhile, the bank's board has appealed to depositors not to panic and said that their deposits were safe.