Banks oppose move to treat MMCB deposits as NPAs

Co-operative bankers of Surat are opposing the Reserve Bank of India's (RBI) move to treat deposits in the beleaguered Madhavpura Mercantile Co-operative Bank Limited (MMCB) as non performing assets.

They have decided to make a representation to Union agriculture and co-operation minister Sharad Pawar.

A decision to this effect was taken at the annual general meeting of The South Gujarat Urban Co-operative Banks Association, the body of urban co-operative banks of south Gujarat, on Saturday.

"The RBI has recently initiated talks with the urban co-operative banks of Gujarat, asking them to treat their deposits in Madhavpura Bank as NPAs and make sufficient provisions. Any such move by the RBI would create havoc in the co-operative banking sector as dozens of banks, which deposited money in Madhavpura Bank, would face closure," an office bearer of the association told Business Standard, requesting anonymity.

"There have been frequent assurances regarding a financial package for the co-operative banking sector. Co-operatives minister Sharad Pawar had announced last year that bonds worth Rs 500 crore would be issued for the urban co-operative banks of Gujarat, but no steps have been initiated to fulfil the assurances. The co-operative banking sector is not getting any support from the government. On the contrary, the RBI is making moves, which would destroy the sector," he said.

"We have decided to meet Sharad Pawar during his visit to Surat on June 9 & 10, and apprise him about the situation. We will urge him to make sure that the RBI refrains from making any moves that would hurt the urban co-operative banking sector. We will also ask him to announce an assistance package for the sector at the earliest," he added.

Around 60 banks had deposited up to Rs 500 crore with the Madhavpura Bank. These include 15 to 20 banks of south Gujarat, which had deposits of over Rs 110 crore in the bank.

Madhavpura Bank is slated to start repayment of 25 per cent of its dues from August 2005. Bankers say if they agree to the RBI proposal, they would have to wash hands off this money as well.

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Burnt fingers

• Several banks will face closure if deposits with Madhavpura Bank are to marked as NPAs
• Around 60 banks had deposited up to Rs 500 crore with the scam-tainted bank.
• The South Gujarat Urban Co-operative Banks Association to meet co-operatives minister Sharad Pawar when he tours Surat later this month