Rajkot Co-op's operations suspended

The Reserve Bank of India (RBI) has suspended the Rajkot Mercantile Co-operative Bank Ltd (RMCB) from banking activities following large scale mismanagement of funds by its office bearers and former directors.

The Rajkot-based bank was established in 1966. The fate of daily saving deposits, savings and current account holders and fixed deposits are uncertain as the bank will now have to revive itself.

Meanwhile, one more co-operative bank in Anand district is set to face liquidation as the state registrar of co-operatives has appointed B N Prajapati, special auditor for the Kheda District Co-operative Bank, as a liquidator for the Petlad Nagarik Sahakari Bank.

Petlad Bank found itself in quandary two years ago when the RBI declared it sick after finding improper handling of funds.

The bank management and a group of depositors had approached Gujarat High Court after the RBI cancelled the bank's licence on March 13, 2004.

The court had ordered a temporary stay on the cancellation of licence, which was lifted in September.

Petlad Bank had issued loans and cash credit of Rs 5.20 crore against deposits of about Rs 5.39 crore. The major portion of this is unsecured and it will be difficult to recover the outstandings soon.

Earlier, Petlad Bank, based in Petlad, was announced to be liquidated August-end this year.

At a press meet in Rajkot, Hemang Vasavda, managing director of Rajkot Mercantile Bank said following RBI directions, the bank has suspended all its banking activities with immediate effect.

"We have upgraded the bank, but on the basis of old reports the RBI has taken this step. The move will hurt the urban co-operative banking sector," he said.

According to Vasavda, the bank has tried to recover outstandings of Rs 1.3 lakh from April 2003 till date. Also, there is no problem in the functioning of the bank and the management is vigilant not to put any of the banks' clients or shareholders in trouble.

"Our bank was having an average daily transaction of Rs 40 lakh, and the bank does not have any monetary problem," he said.

The bank has also reduced the expenditure to fulfill the norms, and has reduced the payment to employees by 20 per cent. The management has also reduced the monthly operating expenditure of the bank by Rs 58,000, he said.

"The management has taken all measures for the survival of the bank and we hope to resume the bank's activities soon," he said.

In a letter the RBI has shown the non-performing assets (NPA) of the bank at 53 per cent but the current NPA is under nine per cent, Vasavda said.

He added that the existing working capital and depositors of the bank is Rs 11 crore as funds. The bank also has 6,000 shareholders.

Earlier, the former chairman of the bank, Bhagvanji Vaghani, and other 10 directors had indulged in misappropriations worth Rs 4 crore. Seven of these directors have gone underground, while Bhagvanji Vaghani has reportedly gone abroad.