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Ketan Parekh ready for deal with BoI

Tamal Bandyopadhyay

Bank of India took the bull by the horn last year. Now it is set to strike a compromise deal with Ketan Parekh to recover its Rs 1.30 billion lost in the Madhavpura Co-operative Bank pay-order scam.

According to sources, the negotiations have reached the final stage and the deal is likely to be signed any day now, possibly before the end of this financial year. When contacted, Bank of India chairman KV Krishnamurthy confirmed that negotiations were on but said the deal had yet to be sealed. He refused to divulge details of the settlement.

According to sources, Parekh is expected to pay Rs 250 million upfront and settle the rest of the amount over the next four years with a one-year moratorium at an interest rate linked to the bank's prime lending rate. The bank's PLR is now pegged at 12 per cent.

Bank of India had provided for the entire amount in its last year's balance sheet. So the recovery will boost its bottomline. Its scrip has been rising slowly over the past three months. Since January 1, it has risen from Rs 15.25 to close at Rs 25 on the National Stock Exchange on Wednesday.

Parekh, who seems to be keen on settling the matter after BoI filed a suit at the debt recovery tribunal, approached the bank through his lawyer with a proposal to settle the dues over the next five years without paying any interest.

The bank rejected that proposal outright but is not averse to the idea of getting its money back over a time provided Parekh is ready to put in part of the money upfront and pay a PLR-linked interest rate. Final touches were being given to the proposal, sources said.

On March 29, 2001, BoI moved the Central Bureau of Investigation against Parekh after it lost Rs 1.30 billion in the Madhavpura pay-order scam. The clearing house returned 13 pay orders worth Rs 1.37 billion in two batches under Rule 11, which implied that Madhavpura Bank did not have sufficient funds to honour the pay orders.

Three investment companies of Parekh that ran current accounts in BoI's stock exchange branch - Classic Credit, Panther Investment Trade and Panther Financial & Capital Management - were involved in the episode. After the pay orders bounced, Parkeh paid off Rs 70 million, leaving a gap of Rs 1.30 billion.

The bank's brass held a series of meetings then with Parekh and asked him to bring in collateral immediately or face legal action. Since he was not able to furnish securities as collateral, BoI filed a criminal suit against Parkeh.

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