Apex Co-op Bank wants to return depositors fund

Stories of urban cooperative banks (UCBs) downing shutters overnight and depositors losing their hard earned money are by now legion. Given the ground realities in cooperative banking, if a bank is keen on discharging its liabilities to its depositors, then it should come as a big surprise.

The Mumbai-based Apex Urban Co-operative Bank of Maharashtra and Goa has made a plea to the Reserve Bank of India that it will repay all its depositors as its banking licence was cancelled last October.

Though the bank has sounded out the central bank about paying back the depositors in view of the problems being faced by them, the regulator's verdict is not out as yet.

Besides running into liquidity problems, UCBs are staring at the prospect of having to make provisioning as their deposits are frozen in Apex Bank. The provisioning threatens to make them sick.

Fiscal 2003-04 could prove disastrous for many of these banks. The liability of Apex Bank to its depositors (209 urban co-operative banks) was Rs 702.60 crore as of March 31, 2004.

The bank's current account and securities general ledger account with the RBI stand frozen following cancellation of its licence on a Supreme Court directive. Now it functions only as a multi state co-operative society.

As of March 31, 2004, Apex's sources of funds for meeting commitments to its depositors stood at Rs 708.97 crore. This includes Rs 525 crore investment in government securities.

"There is always the lurking possibility of interest rates firming up and the value of Apex Bank's investment portfolio shrinking. If this happens we may not be in a position to repay our depositors," K Raj Kumar, general manager, Apex Bank, said.

When Apex was functioning as a bank, deposits of UCBs with it counted for meeting the SLR norm.

Now the UCBs have a problem as the bank is a Society. UCBs investments in a Society are now construed as prohibited investments. Liquidity of the UCBs has also been affected as they have current account balances of around Rs 70 crore with the bank.

Further, non-repayment of matured deposits to member banks may attract 90-days non-performing assets provisioning norm and a number of banks could become sick.

Bulk of the deposits with the bank counted for meeting the UCBs statutory liquidity ratio norm. Besides deposits were earmarked for reserves by various UCBs.