Excess SLR holdings reason for RBI's comfort on Abhyudaya Co-operative Bank

The gross NPA ratio of the bank is around 12 per cent, and the regulator aims to bring it down to 8 per cent through sustained recovery efforts

The board of Abhyudaya Co-operative Bank, which was superseded by the Reserve Bank of India (RBI) without imposing any restrictions, such as a cap on deposit withdrawal, is because the lender maintains a statutory liquidity ratio (SLR) much higher than mandated.

“There was comfort since the bank has excess SLR, meaning any depositors who come to withdraw money should not have any problem. Currency chests were also kept open to meet any requirements. However, it was not required as everything went off smoothly,” said a source familiar with the development.

According to sources, governance was the main issue the bank was facing, and there were no instances of fraud, unlike the Punjab & Maharashtra Co-operative Bank, which faced business restrictions or all-inclusive direction (AID) in RBI parlance when the regulator superseded the board in September 2019.

According to norms, once a lender is put under AID, the deposit insurance cover provided by Deposit Insurance and Credit Guarantee Corporation kicks in within 90 days.

“The non-performing assets (NPAs) went up due to a lack of follow-ups. Even if the businesses were doing well, borrowers did not pay because the bank management did not make any efforts to recover the dues. This was an issue of mismanagement,” the source said.

The bank also did not classify certain borrowers as wilful defaulters.

The net NPA ratio of the bank is around 12% and the aim of the regulator is to bring it to 8% through sustained recovery efforts. All urban cooperative banks in aggregate had a net NPA ratio of 4.4% while scheduled UCBs’ NNPA ratio was 3% as on March 2022.

Abhyudaya is a scheduled UCB.
 

On Friday, the RBI superseded the board of Abhyudaya for 12 months and appointed Satya Prakash Pathak, former chief general manager of State Bank of India, as administrator to manage the affairs of the bank during this period.

A three-member committee of advisors has also been appointed to assist the administrator.

The cost-to-income ratio of the lender shot up to 80 per cent because recruitment was three times the requirement.

“Several regulatory and supervisory meetings were held with the erstwhile management of the bank. Over a period of 18 months, the regulators have been telling them to beef up recovery efforts, but the bank has not taken any action,” the source said.

Sitaram Ghandat, who was chairman emeritus, according to the bank’s audited balance sheet as of March 31, 2021, was elected as Member of Legislative Assembly from the Gangakher Assembly constituency in 2009 as an Independent candidate. He was also elected from the same constituency in 1995 and 1999.