Maharashtra State Cooperative Bank (MSCB), whose board of directors was dissolved five months ago, is expected to miss the deadline of March 2012 to get the banking licence. For 1906-founded institution has to meet crucial criteria of four per cent capital-to-risk (weighted) assets ratio (CRAR).
The Maharashtra government has taken up the matter with the union finance ministry and Reserve Bank of India (RBI) to extend the deadline till March 2013 for seeking banking licence. On Tuesday, state chief minister Prithviraj Chavan made it clear that MSCB needs to strictly adhere to the provisions of Banking Regulation Act if it sought to secure a banking licence. Also, it will have to wind up its role as a development finance institution.
Chavan’s statement is crucial as the severe differences have been cropped up between the MSCB’s statutory auditors Batliboi & Co and state-run National Bank for Agriculture and Rural Development (Nabard) during their assessment of balance sheet for 2010-11. While MSCB’s statutory advisors have observed the bank’s CRAR having turned positive to 5.86 per cent from -1.5 per cent. Nabard in its inspection report, though, has put the CRAR at 1.9 per cent.
Chavan said MSCB was not able to achieve four per cent of CRAR as the state had to pay in all Rs 1,800 crore to the banks towards statutory government guarantee. However, as per the assessment available with the state government, the amount is not Rs 1,800 crore — but of the order of Rs 672 crore, he told Business Standard. “Therefore, it is not the sole reason for the bank to achieve four per cent CRAR.”
The bank should, instead, step up recovery of long-pending dues, become more transparent in the sale of its assets and follow provisions of Banking Regulation Act while sanctioning and the disbursal of loans, he added.
Chavan claimed MSCB had committed “serious mistakes” on these fronts. He justified the dissolution of banks board of directors on May 7 and the appointment of administrators. “It was not a political decision,” he added.
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The bank’s chief administrator and state agriculture secretary S K Goyal said there are seven state cooperative banks, including MSCB and 127 district central cooperative banks which need to seek banking licence by March 2012 as per the Rakesh Mohan Committee report.
“Ultimately, the RBI will have to take a call of sanctioning banking licence to MSCB,” Chavan said. “The bank’s statutory auditors, which are reputed, have pointed out that CRAR is 5.86 per cent. Nabard doesn’t disagree to it. It has also raised objections with regard to provisioning of one unit on which the statutory auditors differ. Therefore, the bank will soon approach RBI seeking its intervention so that the bank will be in a position to get the licence,” he added.
MSCB managing director Pramod Karnad said the bank had fulfiled RBI’s guidelines with regard to CRR, SLR and below 10 per cent NPA. Nabard and his bank’s statutory auditors, he admitted, differ over the CRAR. “Still we are hopeful to get the banking licence by March 2012. Ultimately, the RBI will have to take a final call in this regard,” he added.
Moreover, Chavan raised serious doubts over the manner in which MSCB completed asset sales to recover the dues. “The cooperative sugar and spinning mills formed by farmers become profitable venture after it was acquired by the private sector. Why similar performance was lacking when farmers’ representatives were the member of the board of directors of sugar and spinning mills. The bank will have to bring in transparency,” he said, and informed that asset sale in future would be done through an asset reconstruction company.
Goyal said MSCB has already appointed three companies to carry out due diligence, valuation and float tenders for auctioning of 26 mills which are under liquidation. These mills owe over Rs 700 crore to the bank. “We hope to complete sale of 15 assets by March 2012 and the balance in thereafter,” he said.
On the future of MSCB and the cooperative sector in general, Chavan said a committee of experts would soon be set up to suggest ways to make the state’s apex cooperative bank function professionally, compete with urban cooperative banks and public sector banks and improve its finances.