Nabard to submit findings on Sivaganga Coop Bank on May 10

Sivaganga District Central Cooperative Bank (SDCCB) in Tamil Nadu has joined the long list of mismanaged cooperative banks, but the attendant political bickering has led to notoriety for the bank.

At present, the National Bank for Agriculture and Rural Development (Nabard) is conducting the audit for the year ending March 31, 2005. It is expected to submit its findings to the Reserve Bank of India (RBI) on May 10. The outcome of the audit will decide whether the bank has turned around in the last one year as claimed by J Jayalalithaa, chief minister of Tamil Nadu.

The political fallout of RBI's recent directive to SDCCB to close its business activities under Section 35 A of the Banking Regulation Act 1949, has brought to light the fact that the cooperative bank has been bleeding since 1999.

Soon after the apex bank's directive, P Chidambaram, Union finance minister, reacted by saying that the Tamil Nadu state government was solely responsible for the mismanagement of SDCCB, as cooperative banks come under the direct administrative control of the state government. Sivaganga is Chidambaram's constituency.

SDCCB had sought for Section 11 (1) of the Banking Regulation Act and was exempted from the purview till March 31, 2004. Section 11 (1) relates to the minimum paid-up capital and reserves of the Banking Regulation Act.

There are about 23 district central cooperative bank (DCCB) in Tamil Nadu. The finance minister said that nine DCCBs including SDCCB were not complying with the Banking Regulation Act.

Chidambaram pointed out that SDDCB had been incurring losses since 1998-99 and reported an accumulated loss of Rs 39.36 crore. The non-performing assets was Rs 75.8 crore, estimated to be 35.8 per cent of the total advances.

Reacting to Chidambaram's comments, Jayalalithaa termed it as 'cheap politics'.

It was in 1999, that SDCCB net worth fell to less than Rs 1 lakh when Dravida Munnetra Kazhagam (DMK) party was ruling Tamil Nadu, she said.

She said that the state government had sanctioned over Rs 16.28 crore in the last four years as interest waiver and liquidity support. To help SDCCB handle the loans given prior to 1999, an additional support of Rs 6.08 crore was given.

Nabard had also sanctioned Rs 7.7 crore as liquidity support. Crop loans worth Rs 35 crore were rescheduled by the bank and have, therefore, reduced its non performing assets. Jayalalithaa said that the RBI directive came at a time when the bank was turning around and sought another exemption from Section 11 extending till March 2007.

With these support extended by the Tamil Nadu government, Jayalalithaa said that the bank was likely to make a profit in 2004-05 and also have a positive net worth of Rs 2.35 crore as of March 31, 2005.

RBI had appointed Nabard to audit the financial accounts of SDCCB for the year ending March 31, 2004. After the state government had completed its audit of the financial results of bank in September 2004, Nabard started its audit in October and submitted its report to the RBI in January 2005.

The RBI had come out with its directive on April 5 to SDCCB to stop accepting or renewing deposits and refunding a maximum amount of Rs 1,000 to deposit holders.

A senior Nabard official said one of the major reasons for the financial 'irregularities' in SDCCB is that the bank has no board of directors but a special officer nominated by the state government, an arrangement that is renewed every year.

It is the special officer who decides on the loan advances to people; there has been no recovery on the bad loans front due to political compulsion, adds the Nabard official. Officials of SDCCB were unavailable for comments.