Surat local bank to merge with BoB

RBI prepares scheme for proposed amalgamation

South Gujarat Local Area Bank (LAB), one of the four struggling LABs in the state, will now be amalgamated with Bank of Baroda (BoB).

In a notice issued on Monday, B Mahapatra, chief general manager of the RBI's department of banking operations and development, said the central bank had prepared a scheme for the proposed amalgamation and forwarded it in draft to both BoB and South Gujarat LAB.

Sources said the apex bank is likely to announce its decision of amalgamation of the two banks this month.

Sources said, "The South Gujarat LAB will not exist after May 12, which is supposedly the last day of moratorium."

This comes in the wake of the Union government's decision in November 2003 conveying an order of moratorium to the management of South Gujarat LAB seeking its closure by February 12, 2004.

However, after the central bank proposal for amalgamation, the period of moratorium was to May 12, 2004. Following the November order, South Gujarat LAB was allowed only to make payments to the depositors.

So far, the bank has returned the deposits of most of its 7000-odd customers in and around the Surat district.

The concept of LAB, which was introduced in 1996 by the Union government, now seems to be losing importance.

The Navsari-based South Gujarat LAB is supposed to be the strongest one compared with its peers in the state. It is learnt that the future of the other three LABs "" Coastal, Capital and Vinayak "" are not so bright and they too have been put under observation by the RBI.

The bank, which was opened in October 2000, spread its network to two districts, Surat and Bharuch with branches in Bardoli, Jambusar and Chikli. As per the guidelines of the RBI, LABs are not allowed to function from more than three districts.

Initially, the promoter of the bank was Kanasinh Mangrolla, a former BJP-nominated Rajya Sabha member.

However, Mangrolla handed over charges recently to Mukesh Desai, who is accused of cheating Surat-based Suryapur Nagarik Co-operative Bank.

Last year, Suryapur Nagarik Co-operative Bank went bust after it was forced to withdraw from the clearing house following severe liquidity crisis.

Both Mangrolla and Desai were named defaulters of huge amounts, which allegedly led to collapse of the bank.