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Suvarna Sahakari Bank may merge with IOB

BS Reporter  |  Mumbai 

The Reserve Bank of India (RBI) may approve the merger of Pune-based urban cooperative bank (UCB) Shri Suvarna Sahakari Bank with Indian Overseas Bank (IOB), the Chennai-based public sector lender.

The proposal is not actually a merger, but only involves the takeover of assets and liabilities of the 37-year-old cooperative bank with deposits of more than Rs 722 crore, banking sources said. The bank’s accumulated losses are estimated at over Rs 350 crore.

RBI had put the Pune-based cooperative bank under moratorium since September 2006, following huge non-performing assets (NPAs), non-recovery of loans and non-compliance with RBI guidelines in case of loan approvals worth Rs 436.74 crore.

While the bank has deposits of over Rs 700 crore, NPAs account for more than Rs 300 crore, primarily due to connected lending, sources said. Connected lending refers to lending among parties or entities related to board members of the bank.

Shri Suvarna Sahakari Bank has 12 branches — nine in Pune, two in Mumbai and one in Shripur. The total employee strength is reportedly a little over 100.

The IOB board has also reportedly approved the proposal before it was put forward to RBI. While the proposal was placed before RBI a couple of months ago, the approval was taking time following a special audit ordered by the Registrar of Companies (RoC) of the Maharashtra government. RoC is the state-specific regulatory body that jointly regulates cooperative banks along with RBI.

Official sources said RBI has only received IOB’s proposal for merger with the cooperative bank. If the merger takes place, it will be one of the very few deals between a public sector bank and a cooperative bank.

On November 23, following a complaint filed by the special auditor, the chairman and several other directors of the bank were taken into legal custody following charges of financial irregularities.

The police said the 15 accused, along with six others, had allegedly misused their rights and sanctioned loans mostly to firms owned by them and then defaulted on the loans, thereby duping depositors.

First Published: Wed, November 26 2008. 00:00 IST
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