UP Co-op Bank unable to recover loans

Lending to apex co-operative bodies and public sector units is proving to be the biggest problem for the UP Co-operative Bank. Large funds of the bank are locked in sick units and its efforts to recover the money have met with no success.

As much as Rs 140 crore given by the UPCB to UP Industrial Co-operative Association, UP Handlooms Corporation and UP Co-operative Spinning Mills Federation is locked in the sick units. All the three firms are based in Kanpur.

UPCB in 1996-97, sanctioned Rs 16 crore to the UP Industrial Co-operative Association (UPICA), for the trade in textiles and Rs 2 crore for trade in yarn.

UPICA, based in Kanpur, is the apex cooperative body of the weavers co-opative societies in UP. The credit limit was sanctioned by the UPCB from the refinance it got from the NABARD's scheme for development of weavers co-op societies. In 1997-98, UPCB again sanctioned CCL of Rs 17 crore to UPICA. From the same year UPICA after exhausting the CCL stopped the operation of the account. On March 2005, total arrears were Rs 46 crore. On CCL for yarn, the arrears on March 2005 were Rs 6 crore.

UPCB, for recovery of loan initiated action under Section 59 A, of the UP Co-operative Societies Act 1965. Recovery certificates were issued and sent to the Additional district magistrate (finance and revenue) Kanpur for realisation of the outstanding amount as land revenue. The ADM ignored the recovery orders. The bank has now sought the intervention of the Registrar Co-operative Societies, UP to use his good office for the recovery of loan.

UP Co-operative Spinning Mills Federation, is another hardcore defaulter, till recently headed by an IAS officer. UPCB sanctioned CCL of Rs Rs 22.50 crore to federation in 1997-98. The bank refused to renew the CCL next year because of the serious irregularities committed by the co-operative body in operation of the account. Total outstanding arrears on the federation in March 2005 accumulated to Rs 66 crore. The bank issued recovery certificate in December 1999. So far no action has been taken in last seven years by the ADM, finance and revenue Kanpur for execution of the recovery certificate.

The bank has meanwhile filed its claim before the Bombay High Court as on the court orders a receiver has been appointed to look after the spinning mills federation. Bombay High Court delivered this order on the petition of many PF trust organisation of several big companies and Maharashtra state road transport corporation, who had invested in the bonds floated by the federation. The co-operative body far from paying the interest defaulted in payment of the principal to the investors in its bonds.

UP Handlooms Corporation, a sick PSU owes Rs 13 crore to the UPCB. The bank had sanctioned a CCL of Rs 6.4 crore to the corporation in 1992-93 for the trading in yarn. This loan was backed by the state governments guarantee.

Owing to default in repayment the NABARD refused credit authorisation for the renewal of the CCL in 1993-94. For the recovery of the loan the bank invoked the governments guarantee in September 1995, but of no avail. On March 2005, total outstanding arrears on Handlooms corporation had accumulated to approx Rs 13 crore.

The bank invoking the powers under UP Co-operative societies Act 1965, issued recovery certificate. The ADM finance and revenue, as usual refused to execute the certificate.

The UPCB, for liquidation of arrears is now contemplating a proposal to ask the government the adopt the same route as it did in case of liquidating the arrears of NTPC, where it had issued debentures redeemable in next 12 years with interest rate of 12 per cent.