RBI slaps criminal case on South Indian Co-op

The Reserve Bank of India (RBI) has filed a criminal complaint against the board of South Indian Co-operative Bank. This is the first instance of the regulator filing a criminal case against a bank's board without the concurrence of the state government.

It has filed the complaint at Matunga police station, Mumbai, against the management for criminal breach of trust and entering into a conspiracy to defraud the bank.

Earlier, the RBI had filed charges against a Gujarat-based co-operative bank for violation of the Banking Regulation Act. At that time, the Gujarat government also joined hands with the RBI.

The RBI, in its complaint, has stated that its statutory audit has unearthed a number of transgressions committed by the management, resulting in huge loss and erosion of deposits of Rs 104 crore. A copy of the report is in possession of Business Standard.

Former South Indian Co-operative Bank chairman Raghavan Sarathy told Business Standard: "We have not violated any RBI norm. I have full faith in the judiciary. Let the law take its own course."

The bank's board was superseded by the RBI last August and since then it has been put under the regulator's directive, freezing all its activities.

"The bank is robust and can be revived by merging it with another bank. My political opponents first conspired against me and at a later stage the wilful defaulters' mafia ganged up with them," Sarathy said. Last August its net non-performing assets were to the tune of 45 per cent.

Sources said a few banks have evinced interest in the co-operative bank but heavy losses have kept them at a bay. RBI's reluctance to part with funds from the deposit Insurance and credit guarantee corporation to make good the depositors' money at the failed bank was also cited as a reason which is obstructing the merger.

The statutory audit had revealed that the bank has financed 26 proprietary firms of an industrial group without credit appraisal and relevant clearances from municipal registration, sales tax registration, partnership deeds, income tax returns of borrowers and guarantors.

The outstanding balance in cash credit accounts of the borrower had been turned into term loans. Letters of credit to the group devolved on the bank. The aggregate outstanding in these accounts stood at Rs 45 crore against which the bank held collateral of Rs 6 crore.