Gujarat Urban Cooperative Banks Federation (GUCBF) has moved the High Court seeking setting aside of a Reserve Bank of India circular that had asked cooperative banks to write off all their losses in one go by the end of 2010-11. Federation says the implementation of the circular would lead to erosion of their net worth to a large extent, rendering their functioning very difficult.
The court on Tuesday scheduled the hearing on June 21.
Besides the RBI, the petition has made CBI, Madhavpura Mercantile Cooperative Bank and Central Registrar of Cooperatives as parties to the case. The RBI circular of December 2010 also applies to 150-odd urban cooperative banks (UCBs), which had placed their funds in the Madhavpura Mercantile Co-operative Bank (MMCB), but their money was sucked into the Ketan Parekh scam of 2001.
The circular, if implemented, would entirely wipe out net worth of some of these banks, fears the Federation. The petitioners have submitted before the court that “on account of the negative impact on the balance sheet, there would be erosion of faith” that can lead to depositors resorting to massive withdrawals. They have also argued that the circular would further affect the working of banks who would fail to maintain cash reserve ratio and statutory liquidity ratio which in turn would attract further action from the RBI, making it difficult for them to survive.
Representation to RBI has not helped banks in securing more time for making such a provision. The banks have asked RBI to give them seven years to make the full provision. The petitioners have urged the court to tell investigators of MMCB scam to file a report and show how money was being recovered from Ketan Parekh.
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