Caught in the headlights: Here's a look at three big rip-offs in UCBs

Urban cooperative banks (UCBs) have, over the years, found themselves at the end of a bad bargain. Weak governance, poor internal controls, political interference and dual regulation by state governments and the Reserve Bank of India — just about everything which can go wrong at UCBs. Some have cleverly played the system — after all, a slave with two masters, is a free man. Below is a look at the three big rip—offs over the last two decades.

Madhavpura Mercantile Co-operative Bank (MMCB) goes bust (2001): The Ahmedabad-based MMCB played wildly by doling out funds to stock brokers in gross violation of the Reserve Bank of India (RBI) norms. It issued pay orders worth Rs 1,200 crore to stock broker, Ketan Parekh, which he discounted with Bank of India. MMCB also lent money to Mukesh Babu and Sirish Maniar of the Maniar Group. The mess saw deposits in UCBs in Gujarat drop by Rs 1,500 crore in FY02, and by another 10 per cent in FY03. MMCB’s licence was cancelled on June 4, 2012.

UCBs and Home Trade (2002): The Navi-Mumbai firm Home Trade bought government securities (G-Secs) on behalf of co-operative banks, including UCBs. The Nagpur District Central Cooperative Bank’s chairman, Sunil Kedar, filed a criminal complaint against the company for not delivering G-Secs of Rs 125 crore. A few UCBs also found themselves at the wrong end of the bad bargain; large sums of money found their way to the bourses. While the RBI had put in a delivery versus payment’s system for G-sec trading by banks, it had allowed cooperative banks to deal in physical securities. On April 20, 2002, RBI said that UCBs should not undertake any purchase or sale transactions with broking firms or other intermediaries on principal-to-principal basis.

Prudential UCB (2003): It had been in existence for 82 years and had deposits of Rs 560 crore and advances of Rs 450 crore when it all turned sour. It lent to a defaulter with many other banks, as much as Rs 24 crore and also to high-risk segments such as real estate, clubs, resorts and film studios. The UCB reported non-performing assets (NPA) of 30.8 per cent (Rs 139.05 crore), but the central bank found that it was actually 66.5 per cent or Rs 300.22 crore.