The Maharashtra State Cooperative Bank, under administrator rule since May 7 last year, has launched a process to auction 15 cooperative sugar factories which have repeatedly failed to repay loans and then went into liquidation.
The bank expects Rs 350 -400 crore from the sale proceeds. This would help raise its capital base, badly needed to increase its capital to risk assets ratio (CRAR) to four per cent. This is necessary to get back its banking licence by the end of the financial year. The process has been launched under the strict Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
Of the 15 factories in question, one was under the control of President Pratibha Patil's family. MSC Bank first had a detailed evaluation done from independent consultants Icra, Mitcon and VGK Trueman. These 15 factories are part of 86 units where loan dues were Rs 3,807 crore as on March 31, 2010. So far, it has completed the auction of 18 units and had expected proceeds of Rs 450 crore. However, it has got only Rs 275 crore so far, as the sale of some units has been stayed by court orders.
Pramod Karnad, managing director, told Business Standard: “The sale process has been launched in the most transparent manner. We hope to mobilise Rs 350-400 crore. This will also lead to the release of funds."
Adding: "We have never defaulted to maintain the (statutory) Cash Reserve Ratio or Statutory Liquidity Ratio (SLR). In fact, the SLR has been 40-41 per cent, as the bank has an excess liquidity. The bank has to achieve the four per cent CRAR as stipulated. This can be achieved, among other measures, by increasing the capital fund through the proposed sale process.”
The National Bank for Agriculture and Rural Development (Nabard), in its inspection report for 2009-10, had criticised the bank for disposal of sugar factories in liquidation in a non-transparent manner. It also expressed disappointment over low sale proceeds. The report was part of the the reason for the Reserve Bank of India recommending dissolution of the board of directors in May last year.