Peer Smear Miffs Co-Op Banks

The Urban Co-operative Banks' Association has complained to the Reserve Bank of India (RBI) against what they termed as unethical practices of some public and private banks to woo customers of cooperative banks by spreading canards about their deposits being unsafe with these banks.

The association last week made a representation to the RBI seeking its intervention in the matter as the development was affecting their business.

A state-owned bank at one of its branches in Mumbai has prominently pasted notices on its premises drawing attention of customers about the instability of cooperative banks in the wake of financial irregularities at Madhavpura Mercantile Co-operative Bank (MMCB).

 

"Due to the unethical practices resorted to by a couple of co-operative banks in Gujarat, public and private sector banks are taking advantage of the situation and spreading a scare among customers of other cooperative bank so as to snatch away deposits," sources said.

During the run on the Ahmedabad-based MMCB, officials of public and private sector banks had reportedly mingled with the depositors, who had queued up at MMCB's branches for withdrawing their deposits, and spread rumours about the financial soundness of co-operative sector banks and solicited deposits.

In the aftermath of the MMCB episode, the directives of the apex bank to urban co-operative banks has caught state and district central co-operatives in a bind.

Hitherto, deposits placed by the UCBs with state and district co-operative banks were reckoned as part of the statutory liquidity ratio (SLR).

The directive requiring all scheduled UCBs to maintain their entire SLR portfolio of 25 per cent of their net demand and time deposits only in government and other approved securities with effect from April 1, 2003 will see a huge outflow of deposits. The Maharashtra State Co-operative Bank alone will see an outflow of Rs 500 crore due to this directive.