The Reserve Bank of India (RBI) on Monday cancelled the banking licence of scam-hit Madhavpura Mercantile Cooperative Bank (MMCB) Ltd.
The apex regulator cancelled the licence under Section 22 of the Banking Regulation Act, 1949 (AACS) late Monday evening as the bank failed to recover over Rs 1,100 crore.
“RBI has cancelled the licence of MMCB on Monday evening as we were not able to make recovery.” Total recovery pending is over Rs 1,100 crore and NPAs have touched 99.9 per cent of total deposits," admitted BKR Maruti, chief executive officer of MMCB.
RBI had issued a showcause notice to the board of administration in March asking why the bank's licence should not be cancelled.
So far, the bank has been able to recover only Rs 3 crore from defaulters. Among pending recoveries include Rs 800 crore from Ketan Parekh and his two aides.
RBI had given a month to the board for improving MMCB's performance and to recover the amount from the defaulters.
However, after the bank's failed recovery, the apex banking regulator cancelled the license. On the next course of action, the central registrar will appoint a liquidator for the bank.
The RBI order addressed to the CEO was issued on June 1, 2012 and pasted as bill o0n the entrance of MMCB premises this evening.
The order cancelled license to carry on Banking Business in India.
According to bank officials, so far Ketan Parekh has paid his individual dues worth Rs 329 crore.
However, Parekh alone is yet to pay Rs 569 crore and an interest amount at rate of 12 per cent which totals to about Rs 668 crore.
The scam surfaced in 2001, when the MMCB management had given huge sum of unsecured advances mainly to Ketan Parekh, a share broker in Mumbai.
About 200 small cooperative banks had exposure in the MMCB.
"Other banks slowly made provisions for their loss in the MMCB to their profits, which insulated them from a potential crisis," said Jyotindra Mehta, chairman, Gujarat Urban Cooperative Banks' Federation (GUCBF).