DICGC wants money from Madhavpura Bk

The ghost of the 2001 stock market scam is haunting the banking sector again with the Deposit Insurance and Credit Guarantee Corporation (DICGC) seeking its money back from the Ahmedabad-based Madhavpura Mercantile Co-operative Bank.

The corporation, which comes under the direct supervision of the banking regulator, the Reserve Bank of India, moved the Bombay High Court last week against the bank seeking its Rs 464 crore back which it paid to revive the bank in 2001.

But the bank officials told this newspaper that they are under no compulsion to return the money back to the DICGC.

The 2001 stock market scam resulted in a heavy outflow of funds from the DICGC _ which insures all banking deposits upto Rs 1 lakh. It had to pay Rs 464 crore to Madhavpura Mercantile Bank, which flouted all banking norms to lend loans worth Rs 888 crore without any collateral to the main scam accused, Ketan Parekh.

When contacted, Jairam A Patel, Chairman of Madhavpura Mercantile Co-operative Bank, said: "As per the MMCB's revival scheme, no where it is mentioned that we have to return the fund within the tenure of the revival scheme".

The MMCB's revival scheme tenure is for 10 years and the fund is returnable only after the end of the 10-year tenure, he claimed.

Further, he said the DICGC argument that the refund should be made out of the recoveries made by the MMCB does not hold ground because as per the revival scheme, it is the individual deposit holders and cooperative bank deposit holders who are to be refunded first.

The question of refunding to the DICGC comes last, he added. Bank officials said they are yet to recover Rs 1,784 crore from its borrowers after the bank witnessed a run on its deposits in March 2001. Of its total defaults, Ketan Parekh continues to remain the biggest defaulter as he has not yet repaid Rs 900 crore, officials said.

The Supreme Court stay order on refunding the amount by Ketan Parekh to the MMCB has put a dent on the banks financial health, officials said.

"If the amount from Ketan Parekh is released to the MMCB, then the most of the refund can be done easily," a bank official said. The bank had Rs 643 crore deposits when it collapsed and claims that it had refunded almost half of its depositors.

The DICGC had to repay over a Rs 1,000 crore to the depositors of Gujarat based cooperative banks after the 2001 scam.