Madhavpura
Mercantile Co-operative Bank (MMCB), infamous for its association with
stock broker Ketan Parekh, has got a six months’ breather from the
banking regulator.
As a last-ditch attempt to keep the bank alive, a revival package is being worked out by merging MMCB with another bank, said an official of the Gujarat Urban Cooperative Banks Federation (GUCBF).
Many cooperative banks that had kept money with MMCB are willing to write off 50% of their exposure to help revive it.
MMCB went under in 2001 after lending money to Parekh who played in the stock market and lost. This had a cascading effect on at least 150 other banks that had kept deposits with MMCB.
“It is an uphill task to revive the bank. People like Parekh, who still owe at least Rs.1,200 crore to the bank, are yet to repay,” said Natwar Patel, director of MMCB.
The bank’s chief executive officer B.K.R. Maruti said they
tried to revive on their own in the last 10 years, but could not do.
He is hopeful of a revival with the new proposal drafted by GUCBF.
MMCB was established in October 1968 to cater to the banking needs of wholesale grocery traders of the Madhavpura area in Ahmedabad.
The bank needs about Rs.500 crore for revival, Maruti said. It has close to Rs.300 crore of cash reserves.
Had MMCB gone for liquidation, at least two dozen cooperative banks would have sunk as they kept money in this bank. Most of them have set aside money for this loss, said an official of MMCB who did not want to be identified.
A central government reconstruction scheme expired last week after 10 years and the Reserve Bank of India (RBI) has taken over the bank, but its operations have been suspended for six months.
MMCB can not accept new deposits and its depositors cannot withdraw more than Rs.1,000 in six months under an RBI scheme.
During this period, the bank can find a solution which could range from bringing in additional capital to merger, an RBI spokesperson said.
This period can be extended if there are clear signs of recovery of the bank.
The spokesperson added that all regulators and the Central Co-operative Registrar will examine the revival proposal.
The board, whose term was to expire this month, has been re-appointed by RBI for an indefinite period.
Jyotindra Mehta, chairman of GUCBF, said: “All cooperative banks and institutions are willing to write off 50% of their exposure to MMCB. Also, the depositors, whom the bank owes roughly Rs.100 crore, are willing to convert 50% of the amount into equity.”
Mehta has also sought a merger with any nationalized bank, including Bank of India (BoI), and claims to have written a letter to the BoI chairman on this. BoI lost Rs.137 crore in 2001 in the so-called stock market scam involving Parekh.
A senior BoI official on Wednesday said he was not aware of this.
“There is no easy solution. One may argue that if a public sector bank was to take over MMCB, why should the public at large be penalized by rescuing a bank that’s in trouble because of a few individuals? Everything will ultimately boil down to recovery of sticky accounts,” said Shailesh Gandhi, a professor at Indian Institute of Management in Ahmedabad, also an expert on the cooperative sector.
MMCB has so far been able to recover more than Rs.350 crore from defaulters.
Its former chairman Ramesh Parikh and managing director Devendra Pandya had allegedly favoured Parekh and his accomplices by issuing a loan of Rs.1,030 crore, but Parekh could not repay.
Courtesy : www.livemint.com & Maulik Pathak
As a last-ditch attempt to keep the bank alive, a revival package is being worked out by merging MMCB with another bank, said an official of the Gujarat Urban Cooperative Banks Federation (GUCBF).
Many cooperative banks that had kept money with MMCB are willing to write off 50% of their exposure to help revive it.
MMCB went under in 2001 after lending money to Parekh who played in the stock market and lost. This had a cascading effect on at least 150 other banks that had kept deposits with MMCB.
“It is an uphill task to revive the bank. People like Parekh, who still owe at least Rs.1,200 crore to the bank, are yet to repay,” said Natwar Patel, director of MMCB.
The bank’s chief executive officer B.K.R. Maruti said they
tried to revive on their own in the last 10 years, but could not do.
He is hopeful of a revival with the new proposal drafted by GUCBF.
MMCB was established in October 1968 to cater to the banking needs of wholesale grocery traders of the Madhavpura area in Ahmedabad.
The bank needs about Rs.500 crore for revival, Maruti said. It has close to Rs.300 crore of cash reserves.
Had MMCB gone for liquidation, at least two dozen cooperative banks would have sunk as they kept money in this bank. Most of them have set aside money for this loss, said an official of MMCB who did not want to be identified.
A central government reconstruction scheme expired last week after 10 years and the Reserve Bank of India (RBI) has taken over the bank, but its operations have been suspended for six months.
MMCB can not accept new deposits and its depositors cannot withdraw more than Rs.1,000 in six months under an RBI scheme.
During this period, the bank can find a solution which could range from bringing in additional capital to merger, an RBI spokesperson said.
This period can be extended if there are clear signs of recovery of the bank.
The spokesperson added that all regulators and the Central Co-operative Registrar will examine the revival proposal.
The board, whose term was to expire this month, has been re-appointed by RBI for an indefinite period.
Jyotindra Mehta, chairman of GUCBF, said: “All cooperative banks and institutions are willing to write off 50% of their exposure to MMCB. Also, the depositors, whom the bank owes roughly Rs.100 crore, are willing to convert 50% of the amount into equity.”
Mehta has also sought a merger with any nationalized bank, including Bank of India (BoI), and claims to have written a letter to the BoI chairman on this. BoI lost Rs.137 crore in 2001 in the so-called stock market scam involving Parekh.
A senior BoI official on Wednesday said he was not aware of this.
“There is no easy solution. One may argue that if a public sector bank was to take over MMCB, why should the public at large be penalized by rescuing a bank that’s in trouble because of a few individuals? Everything will ultimately boil down to recovery of sticky accounts,” said Shailesh Gandhi, a professor at Indian Institute of Management in Ahmedabad, also an expert on the cooperative sector.
MMCB has so far been able to recover more than Rs.350 crore from defaulters.
Its former chairman Ramesh Parikh and managing director Devendra Pandya had allegedly favoured Parekh and his accomplices by issuing a loan of Rs.1,030 crore, but Parekh could not repay.
Courtesy : www.livemint.com & Maulik Pathak
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