Deposits safe, RBI confident of fixing Abhyudaya Co-op Bank's governance

Lender was under regulatory watch for about 2 yrs, had ignored RBI red flags

Abhyudaya Cooperative Bank is probably the first lender whose board was superseded by the Reserve Bank of India (RBI) without imposing business restrictions.
 

This reflects the regulator’s comfort that some governance concerns of the lender could be addressed without disturbing the operations of this multi-state cooperative bank, sources said. The lender, established in 1965, was under regulatory watch for about two years, sources said.
 

The asset quality of the bank worsened with gross non-performing assets (NPAs) increasing substantially with a depleting capital position.
 

In May 2022, the RBI imposed a Rs 58 lakh penalty on it for violating several norms. Abhyudaya accepted fresh deposits from other non-scheduled urban cooperative banks (UCBs) despite not meeting the criteria for doing so and had also not phased out 100 per cent of the existing deposits of UCBs by March 31, 2019.
 

It had reported a fraud with a delay of 942 days and failed to classify certain loan accounts as NPAs in accordance with norms on income recognition and asset classification, the RBI had said while imposing the penalty.
 

“The regulator has been asking the bank’s management for about two years to improve its health by controlling costs and other measures, but that was ignored,” said a source.
 

In March 2020, the bank had deposits of Rs 10,838 crore and advances of Rs 6,654 crore.
 

The bank has more than 1.7 million depositors and 109 branches, mainly in Maharashtra. On Friday, the RBI superseded the board for 12 months and appointed Satya Prakash Pathak, former chief general manager of State Bank of India, “administrator” to manage the affairs of the bank.
 

A three-member committee of advisors has been appointed to assist the administrator. Officials involved in the affairs of Abhyudaya said they were confident of tiding over liquidity requirements once the branches opened on Tuesday. The bank has sufficient cash with itself and in other banks, and securities to meet withdrawal demand.
 

“The issue was with governance, which is being addressed with a new set of professionals appointed by the RBI. The regulator is hopeful of resolving governance issues in the bank in due course,” another source said.
 

On its FAQ (frequently asked questions) on the website, the bank says the reason for appointing the administrator is “to safeguard interest of all stakeholders/depositors/ borrowers/shareholders and staff and to improve financial health of the bank”.
 

The FAQ said, “All depositors’ money is safe”. It says no limits have been placed on withdrawals and that business will continue as usual.
 

Mobile banking, real-time gross settlement, and national electronic fund transfer will continue. The FAQ warned all against rumours.
 

Sitaram Ghandat, who was chairman emeritus, according to the bank’s audited balance sheet as on March 31, 2021, was elected MLA from the Gangakher Assembly constituency in 2009.
 

He was elected from the same constituency in 1995 and 1999.