Nod for SGLAB merger with Bank of Baroda

The Union Cabinet has given a green signal to the merger of Navsari-based South Gujarat Local Area Bank (SGLAB) with Bank of Baroda (BoB). A decision to this effect was taken at the Cabinet's meeting on Tuesday. An official announcement will be made before August 12, 2004.

The decision to merge SGLAB with BoB was taken keeping in mind the interests of the local area bank's depositors. As per the merger formula, all assets and liabilities of SGLAB will be transferred to Bank of Baroda. The employees of SGLAB will also be absorbed in BoB.

SGLAB was established on October 10, 2000. It has seven branches and 76 employees.

The bank failed to maintain the minimum cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements and had losses of Rs 3.69 crore as on September 30, 2003.

To make matters worse for the bank, one of its promoters, Mukesh Desai, is an accused in the Rs 44-crore Suryapur Co-operative Bank scam. He has spent over an year in jail in connection with the case and was recently released on bail.

A non bailable warrant has also been issued against SGLAB's second main promoter, Kanasinh Mangrolla, a former Bharatiya Janata Party nominated member of the Rajya Sabha, who also held the post of the bank's chairman. Mangrolla has not been traceable for long.

Ironically, the idea of setting up local area banks (LAB) was mooted in 1996 by the then finance minister P Chidambaram and the merger of one of the last LABs has also come when Chidambaram is the finance minister.

With this development, the concept of LABs seems to have become redundant. SGLAB was considered to be the strongest among the four existing LABs.

The three other LABs are Coastal Local Area Bank Ltd, Capital Local Area Bank and Vinayak Local Area Bank. It has been learnt that the future of these three LABs are also not bright as they have been put under observation by the RBI.

Earlier a notice issued by B Mahapatra, chief general manager of the Reserve Bank of India's department of banking operations and development, said the proposed amalgamation of SGLAB with BoB was in line with the powers conferred on the RBI. The apex bank prepared the merger scheme and forwarded it in draft to both BoB and SGLAB.

SGLAB was opened in 2000 and spread its network to the two districts of Surat and Bharuch. As per RBI guidelines, LABs were not allowed to function from more than three district areas.