Treat MMCB exposure as NPA, Mint Road tells state UCBs

The Reserve Bank of India (RBI) has asked all those co-operative banks that have kept deposits in Madhavpura Mercantile Co-operative Bank (MMCB) to treat such sum as non performing assets (NPA) and make sufficient provisions.

According to banking sources, the RBI has begun holding meetings with the officials of those banks that have lost money in Madhavpura Bank scam.

"There are several banks that have lost huge money in Madhavpura Bank. In some cases, this money is as big as Rs 30-40 crore.

"Provision has to be made from the profit, and there would hardly be a bank, which can afford to make provision of such large sums," the chairman of a Surat-based co-operative bank told Business Standard.

"What is worse is that the RBI wants the banks to make the provision at one go. If the RBI asks the banks to make the provision in phases, some of the banks might be able to survive. But now most of the co-operative banks would face closure," he added.

"Madhavpura Bank is slated to start re-payment of 25 per cent of the banks' dues from August. There is hope that the banks would be able to recover part of their money, if not the entire sum.

"The Reserve Bank of India would also close the doors on this possibility," another Surat-based co-operative banker said.

"The Reserve Bank of India is probably trying to streamline the co-operative banking sector.

"But we believe that such moves could destroy the co-operative banking sector," he said.

About 15 to 20 urban co-operative banks of south Gujarat region, including Surat, have lost approximately Rs 125 crore in Madhavpura Bank.

The revival package of Madhavpura Bank has been extended by another year and the management has been directed to speed up the recovery process.

The Reserve Bank of India suspended MMCB from the clearing house in March 2001, after a preliminary inquiry revealed that the bank was facing a major liquidity crunch and was in the eye of the pay order scam involving Ketan Parekh.

The original revival package period of the bank was scheduled to expire on August 24, 2004, but has been extended since.

About 60 banks had deposited around Rs 500 crore with Madhavpura Bank.