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May 30, 2001
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Madhavpura to get new name, management

BS Banking Bureau

The Reserve Bank of India is putting together a revival package for the beleaguered Madhavpura Co-operative Bank but with two important riders: the bank must be rechristened and run by a new management.

"The bank will be revived. But it cannot be revived in its present form. It will get a new name and a new board of directors," sources close to the central bank said.

The revival package envisages pumping in Rs 4.70 billion by the Deposit Insurance & Credit Guarantee Corporation. The entire process is likely to be over by June-end.

A revival committee, appointed by the central registrar of cooperative societies, had recently submitted a detailed bailout package for Madhavpura to RBI.

Leading chartered account firm Chitale & Co was also roped in to chalk out the rehabilitation plan.

Going by the report, about 350-odd cooperative banks in Gujarat will park 4 per cent of their deposits with Madhavpura Bank. This will translate into an inflow of about Rs 7 billion in the form of deposit liability.

This liability will have a guarantee cover from either the state government or the Centre.

However, crucial to Madhavpura Bank's revival is the DICGC cover that in normal circumstances is activated only when a bank is liquidated.

This will be a unique case where the DICGC- a RBI arm-extends a lifeline to protect depositors in a bank which has not gone for liquidation.

"We are working on the modalities of DICGC cover," sources said adding "the bank will be revived and not sent for liquidation."

The bank is now being run by an administrator, S Ramachandran, who had put in his papers but later withdrew them.

Madhavpura Bank went bust in April after it overexposed itself to the stock market, taking huge exposures with stockbroker Ketan Parekh in violation of RBI norms.

Bank chairman Ramesh Parikh and managing director and CEO Devendra Pandya were arrested but subsequently released on bail.

The central bank had lodged a complaint with the chief metropolitan magistrate's court naming Parikh and Pandya as accused under Section 46 of the Banking Regulations Act and Section 58 of the RBI Act.

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