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Krushi Bank depositors heave a sigh of relief

Syed Amin Jafri in Hyderabad

Worried depositors have heaved a sigh of relief following the Reserve Bank of India directive superceding the board of directors of Krushi Co-operative Urban Bank and asking the Registrar of Co-operative Societies to appoint an administrator to decide on its liquidation or merger.

The bank's 3,000-odd depositors have been an agitated lot for the last five days following a liquidity problem that forced the bank to suspend its operations.

However, with the RBI fiat to the Registrar of Co-operative Societies to supercede the board of the bank, blacklist its existing directors and name an administrator to take control of the bank's operations, they got some confidence.

State principal secretary, Agriculture and Co-operation Department, S Bhale Rao, said that the state government is initiating steps to comply with the RBI directives.

An independent statutory inspection of Krushi Bank's account books is being carried out by the cooperative department officials and the RCS, on return from election duty in Guntur district, would appoint an administrator.

For the first time, the RBI has directed the RCS to disqualify the directors of Krushi Bank from membership in all other cooperative institutions.

Under Section 115B of the AP Cooperative Societies Act, the administrator to be appointed by the RCS would take a decision either to liquidate or amalgamate Krushi Bank with some other co-operative bank.

The RBI has found Krushi Bank guilty of asset-liability mismanagement. The RBI had scrutinised the Bank's accounts in March last and had placed the bank under the apex bank's direction in June 2001.

The RBI found that as against deposits of Rs 350 million, the bank's loans and advances worked out to Rs 530 million and there has been no improvement in its functioning in the last two months.

What's worse, the Bank's non-performing assets mounted to Rs 330 million, or 62.5 per cent of its total loans and advances.

Moreover, the bank had given large unsecured advances to four of its directors, including the chairman and vice-chairman, and its exposure to the capital market was to the extent of Rs 22.5 million.

In June itself, the RBI had imposed a freeze on loans and advances of the bank as on March 31, 2001 and directed the bank to reduce the NPA to less than 10 per cent of its net advances and to obtain security for its unsecured loans by September 30, 2001.

Even the sanctioning powers of the bank's board were curtailed and it was asked to appoint a loan committee. However, the bank directors kept things under wrap and ignored the RBI's earlier directives.

Registered on April 1, 1998, the Krushi Bank started its business on June 22 the same year.

The bank's woes started in June this year, following withdrawal of huge deposits by another local urban co-operative bank in pursuit of the RBI policy directive banning co-operative banks maintaining deposits in other co-operative banks. The last instalment of the payment to the other bank was effected on August 8 and 9, pushing Krushi Bank into the current crisis.

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