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Banks' losses from co-op banks Rs 2.7 billion

Commercial banks have suffered losses of over Rs 2.7 billion through transactions with troubled co-operative banks, a senior central bank official said on Monday.

The Reserve Bank of India had in the first week of April asked all commercial banks to report losses from call money, pay order and bullion transactions with co-operative banks.

The directive followed losses reported by some state-run banks in March after pay-orders issued to them by a few co-operative banks bounced.

"The figures reported to the central bank shows that losses suffered by commercial banks are a little over Rs 2.7 billion," the official, who did not wish to be identified, said.

Last month, Bank of India said it suffered a loss of Rs 1.3 billion after cheques issued to it by a troubled co-operative bank, the Ahmedabad-based Madhavpura Mercantile Co-operative Bank bounced.

Madhavpura Bank ran into a liquidity crunch due to excessive exposure to the stock market, which fell sharply last month.

The BSE Sensex has lost 28.6 per cent from its post-budget high of 4,386.98 points hit on March 1.

The RBI has suspended the board of the bank and placed its operations under an administrator after the payments problem emerged.

Two other small banks, Lucknow-based City Co-operative Bank and Ahmedabad-based Classic Co-operative Bank, are also facing a cash crunch due to over-exposure to shaky share markets.

State-run State Bank of India, Bank of India and Punjab National Bank along with Standard Chartered Bank have suffered potential losses worth Rs 696 million after Classic Co-operative Bank issued payment orders on behalf of a bullion trader to these banks.

The payment orders to all four banks have bounced.

The RBI has also suspended the board of Classic Co-operative Bank and placed it under an administrator.

SBI, India's largest commercial bank and the biggest gold-import supplier, has said it was facing a potential loss of Rs 395.7 million after it sold bullion to a trader whose cheques drawn on Classic Co-operative Bank bounced.

Bank of India, one of the leading importer-suppliers of gold in Ahmedabad, has already suspended bullion trading.

The bank's decision was prompted by a Rs 50-million loss it suffered after Classic Co-operative Bank failed to honour pay orders issued by it on behalf of a bullion trader.

Punjab National Bank has said it could lose Rs 170 million due to the financial problems at Madhavpura and Classic banks.

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