High court upholds Ganesh Bank, Federal Bank merger

The Bombay High Court today upheld the Reserve Bank of India's (RBI) decision to place Kolhapur-based Ganesh Bank of Kurundwad (GBK) under moratorium and it's subsequent merger with Kerala-based Federal Bank.

The two-judge bench comprising justice H N Gokhale and justice Abhay Oka dismissed the petition by some shareholders, depositors and employees challenging the actions taken by RBI.

They had contended that RBI acted against Ganesh Bank in haste without following the principles of natural justice and that the bank was not given adequate time to revamp and bring in additional capital.

The court gave four weeks to the petitioners for filing any appeal in the higher court. The private sector bank will remain under moratorium and the amalgamation with Federal Bank will not come into force during these four weeks. The depositors are allowed to withdraw a maximum of Rs 5,000 from their accounts during the moratorium period.

On January 7, 2006, RBI had placed Ganesh Bank under moratorium for three months till April 6 and, subsequently, announced its merger with Federal Bank.

Based on the petition filed against the RBI, the high court had granted a stay on the merger. RBI, in turn, challenged the high court order in the Supreme Court. The apex court dismissed the RBI petition and directed the high court to take up hearing in the matter on a day-to-day basis.

RBI inspections had revealed that Ganesh Bank did not have processes to assess the requirement of capital based on its risk profile and also lacked any strategy for augmenting capital.

The bank's asset quality showed substantial deterioration as the bank lacked strategy to measure, monitor and manage interest rate risks.

Its had a negative net worth of Rs 3.05 crore and capital adequacy of minus 5.83 per cent as on March 31, 2005, which resulted in the erosion of depositors' money. GBK has deposits of Rs 217.43 crore and loans outstanding of Rs 105.73 crore.