Co-op banks sceptical: RBI order on MMCB

Order to classify deposits in MMCB as NPAs may weaken co-op movement

Urban co-operative banks in the state feel that the recent circular by the Reserve Bank of India asking them to classify their deposits in the Madhavpura Mercantile Co-operative Bank as non-performing assets with effect from March 2005 will considerably weaken the co-operative banking movement and shake the faith of depositors in the system.

Around 90 co-operative banks in the state will be affected by the decision. This include up to 14 banks from the Saurashtra and Kutch region.

"This is a hasty step. All advances given by banks could be transferred into NPA accounts but it is not correct to classify deposits as NPAs," said Jyotindra Mehta, a leader of the co-operative movement in the state and chairman of the Rajkot Nagrik Bank.

The RBI circular would lead to fall in banks' profits and their ratings would decline, Mehta said.

Classifying deposits as NPAs would also affect the capital adequacy ratio (CAR) of banks, said Mehta. Banks' CAR should not drop below 9 per cent, but if banks adjust deposits as NPA, the CAR may fall, said Mehta.

At present, CAR of most of the co-operative banks in the Saurashtra and Kutch region is between 12 and 14 per cent, Mehta said.

There are 62 co-operative banks in the Saurashtra and Kutch region. There are 13 banks in Rajkot district, nine in Junagadh, 13 in Bhavnagar, seven in Amreli, six each in Surendranagar, Jamnagar and Bhuj-Kutch and two in Porbandar. Out of these, 18 co-operative banks have deposits of Rs 50 crore.

Co-operative banks of Saurashtra had deposited many cheques for clearing with Madhavpura Bank when the bank collapsed. The amount credited with Madhavpura could not be received by the banks, said Mehta.

Urban co-operative banks will demand review of the RBI decision, said Mehta.

Nadiad MP Dinsha Patel has written a letter to the Prime Minister Manmohan Singh, finance minister P Chidambaram and Congress chief Sonia Gandhi demanding a revival package for co-operative banks in state.

"If the RBI continues its stand of not providing any revival package to state co-operative banks, over 138 banks will breathe their last soon," Patel said.

"The RBI announced merger of Global Trust Bank (GTB) with Oriental Bank of Commerce. But RBI is not interested in revival of co-operative banks by providing Rs 650 crore as a revival package," Patel said.

A delegation of 12 MPs from Gujarat including Patel, Shankarsingh Vaghela, Tushar Choudhri and Bharat Solanki had met Manmohan Singh demanding a revival package for co-operative banks in state.

The prime minister has forwarded the issue to the finance minister's office and assured his support, Patel said.