Prudential Bank hopes to restart operations soon

Riding on its success in recovering bad loans, city-based Prudential Co-operative Urban Bank Limited hopes to restart its operations soon. The bank which defaulted on payments to depositors last year is planning to seek the RBI's nod to return deposits of up to Rs 10,000 to depositors.

Speaking to Business Standard, Murali Mohan Rao, the new chairman of Prudential Co-operative Urban Bank, said: "We have requested the Reserve Bank of India (RBI) to allow the bank to return deposit amounts of up to Rs 10,000 to depositors. We are hopeful of getting the RBI consent in a month."

The bank on an average recovers Rs 10 crore a month and has recovered Rs 152 crore out of the Rs 510 crore it lent, Rao said.

The bank suspended its operations in March 2003 following an order from the RBI under Section 35A of the Banking Regulation Act 1949 as applicable to the co-operative societies.

The bank turned sick after lending heavily to risky sectors like commercial construction companies. Most of the advances were granted in the form of overdrafts and not loans.

The bank had reportedly misled the RBI on the state of non-performing assets (NPAs), cash reserve ratio (CRR) and advances.

Due to poor statutory liquidity ratio (SLR) and CRR, the liquidity position of the bank was found to be extremely critical. Among other things, the RBI found that no valid reasons were given for advances extended on lands.

A year later, the bank has also exceeded the levels of CRR and SLR as prescribed by the RBI.

"The recovery rate has been good and if the RBI approves our proposal, then we would be in a position to disburse Rs 85 crore immediately," Rao said.

If the bank gets the go-ahead from the RBI, around 50,000 deposit accounts out of a total of two lakh would be settled, he added. The bank has 20 branches across the state. At present, seven branches have been closed down. At present, it has 362 employees on its rolls.

Rao, who was a general manager of the Canara Bank earlier, has recently taken over as the chairman of Prudential Bank. He said his top priority was to improve the recovery rate and get the 85 year-old bank fully operational again.

He said the depositors have agreed to a 6.5 per cent interest on their deposits as against a higher interest rate promised earlier.

He also said that the new state government was committed to reviving the bank and was extending full support and cooperation to the bank.