Favoritism the bane of co-op banks in Gujarat

CO-OPERATIVE DEBACLE

The reason behind the debacle of the co-operative banking sector in Gujarat can be put in one sentence "" blatant misuse of authority.

Take the case of Diamond Jubilee Bank. C R Patil, chairman of the bank, had taken a loan worth Rs 50 crore from the bank.

Patil managed to get this amount mainly because of his close relation with the bank's managing director Sultan Virani and other directors.

Patil was unable to repay the loans, which resulted in the bank going bust. Over Rs 100 crore belonging to around 85,000 depositors are stuck in Diamond Jubilee Bank.

"The main reason for the success of co-operative banks was trust. At present there is so much scepticism among depositors of co-operative banks that even a small rumour can trigger panic withdrawals. This is because the continuing trend of co-operative banks going kaput in the last couple of years," an expert said.

"The depositors of Surat have lost Rs 200 crore due to mismanagement in Diamond Jubilee Bank, Suryapur Bank and Vikas Bank. Their faith in the co-operative banking sector has been terribly shaken," he said.

In case of Suryapur Bank, the bank's founder chairman Kanaksinh Mangrola and other directors, took bogus loans worth crores of rupees from the bank. The loans were never repaid.

Poor financial condition of the bank resulted in the cancellation of its clearing house status in August 2002. Its licence was revoked by RBI in August. The depositors of Suryapur Bank have lost over Rs 60 crore in the process.

In the case of Shree Vikas Co-operative Bank, the bank chairman Kalpesh Jariwala and vice-chairman Dilip Chudawala, took loans worth Rs 20 crore from the bank, which they never repaid. The bank's licence was terminated on September 1. The bank owes over Rs 30 crore to the depositors.

The story is no different in the case of The City Bank, The Century Bank and The Royale Bank.

The City Bank's directors allegedly indulged in a hawala transaction of Rs 12 crore with Suryapur Bank (after it's closure), leading to the financial crunch at the bank. Following this, the Gujarat High Court superseded the bank's board.

The state government, on high court order, has appointed a panel to look after the bank's administration.

According to industry experts, City Bank's condition has improved, since the panel has taken over the bank.

The Century Co-operative Bank was suspended from clearing jobs on August 31 as it failed to meet the regulatory requirements.

The bank's total loan advances are around Rs 15 crore, out of which a major portion has been taken by the bank chairman Hari Malpani and his aides.

The bank continues to be suspended from clearing jobs and depositors stand to lose almost Rs 14 crore if the bank is barred by the Reserve Bank of India (RBI).

In the case of The Royale Bank, which is the latest co-operative bank in Surat to be caught in a crisis, the bank's managing director Parul Shah openly accused bank chairman Jitu Modi of being responsible for the crisis.

"Jitu Modi had granted loans to many friends and relatives. He had assured to make arrangements for necessary cash so that the bank could tide over the crisis, but he never turned up," Shah told Business Standard on Wednesday, when Royale Bank was barred as a clearing house.

According to banking experts, the co-operative banking sector of Surat would continue to face problems in the coming years.

"RBI has announced measures for better monitoring of co-operative banks. Due to this, weak banks will be automatically filtered out, while the financially stable banks, will emerge stronger. I feel the co-operative banking sector of Surat would feel the heat for two-three years more," he said.