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Madhavpura bank revival a non-starter

Pradeep Mallik in Gandhinagar

A revival package for a scandal-tainted Gujarat bank is turning out to be a non-starter with other co-operative banks wary of contributing toward the Rs 12.64 billion bailout.

The Madhavpura Mercantile Co-operative Bank hit the headlines in March when it was revealed as the conduit through which Bombay stockbroker Ketan Parekh siphoned off Rs 1.37 billion in a pay order scam.

Parekh had taken the money from the bank by pledging his stocks, whose value, however, dropped sharply due to a crash in the markets.

A subsequent audit revealed that the bank had run up bad debts of Rs 12.64 billion due to arbitrary investments by its senior officials. The management of the bank, including board of directors, was sacked after the scam.

Following this, cooperative banks were to raise Rs 8 billion by contributing four percent of their total deposits. The Deposit Insurance and Credit Guarantee Corporation was to contribute the remaining Rs 4.64 billion.

The revival package was approved last week following a meeting in New Delhi between Union Finance Minister Yashwant Sinha and Gujarat Chief Minister Keshubhai Patel.

"No co-operative bank has so far passed a resolution to contribute its share of 4 per cent," Gujarat State Co-operative Federation chairman Ghanshyam Amin said.

He pointed out that as many as 164 co-operative banks had deposits totaling Rs 6 billion in MMCB.

"The government is ready to stand guarantee to the Rs 8 billion to be raised from co-operative banks, but there is no mention of the money they had put in the MMCB earlier," he said.

Under the circumstances, said Jayram Patel, chairman of the Gujarat Co-operative Bank Ltd, bank chiefs will find it difficult to get board approval for contributing four percent of their deposits towards the revival package.

"The revival may take two years, or even 10 years. It will take years for the MMCB to regain customer confidence. Who will come to put money into a bank that all but went into liquidation?"

Patel is a member of the 15-member committee formed by Gujarat Finance Minister Vajubhai Vala to co-ordinate with the co-operative banks to put together the revival package.

"The saving grace is that the small individual depositors will get back their money to the extent of Rs. 100,000 each as the Deposit Insurance and Credit Guarantee Corporation has, for the first time, agreed to disburse Rs 4.64 billion without the bank going into liquidation," Patel said.

Indo-Asian News Service

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