State wants MSCB to share funds to revive DCCBs

Weighed down by heavy debt burden, the Maharashtra government wants the Maharashtra State Co-operative Bank (MSCB) to share 'fifty-fifty' the funds required for reviving the fortunes of the 12 ailing district central co-operative banks (DCCBs) in the state.

As per the 'balance sheet clean-up plan' for DCCBs, envisaged in the union budget a couple of years ago, the Centre will bear 60 per cent of the burden for each bank provided the State comes up with the balance. The Centre, had, in fact, created a corpus of Rs 100 crore for the purpose.

To overcome the burden of the bail-out, the State Government, which is reeling under a debt burden of close to Rs 90,000 crore, has proposed that the MSCB 'share' this bailout load fifty-fifty.

"The MSCB's financial position is such that it will be impossible for it to shoulder the load of balance sheet clean-up. In such a situation, there is no way that the DCCBs can hope to come out of the deep waters that they find themselves in," said a source in the know of developments.

In Maharashtra, 12 out of 30 DCCBs are in dire financial straits as their share capital and reserves (net owned funds) has eroded substantially and gone below the minimum threshold limit of Rs one lakh.

All these banks are under rehabilitation under Section 11 of the Banking Regulation Act, 1949 (as applicable to co-operative societies) by the registrar of co-operative societies.

The 12 DCCBs in Maharashtra that have come under the Section 11 are Buldhana, Jalgaon, Parbhani, Beed, Dhule, Aurangabad, Amravati, Jalna, Nanded, Nagpur, Wardha, Osmanabad.

The continuance of banks not complying with the minimum capital requirements specified under Section 11 of the BR Act, 1949 (AACS) is, therefore, in contravention of the Act.

Banks put under revival programme have to submit to the Nabard an action plan for their resurrection.

The action plan submitted should envisage improvement in the level of capital to risk weighted assets ratio and the bank's revival within a period of about three years.

The bank needs to submit quarterly information on progress achieved to the Nabard for review.

With the introduction of prudential norms and preparation of balance sheet by banks as per the guidelines on income recognition, asset classification and provisioning, the number of co-operative banks not complying with minimum share capital requirement of Rs 1 lakh has only increased.