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Wednesday, Jan 23, 2002

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Karnataka co-op bank may be on the verge of collapse -- `Revival plan being readied'

Vishwanath Kulkarni
Abhrajit Gangopadhyay
C. Shivkumar


THE Karnataka Central Co-operative Bank, located in Dharwar, is heading towards collapse. This is the first district central co-operative bank to land in such a sticky situation. The two other institutions, which collapsed in Gujarat and Andhra Pradesh last year, were urban co-operative and rural co-operative banks respectively.

Sources said that this tottering bank has shaken a series of subordinate co-operative banks — both urban and rural co-operative banks. The total outstanding liabilities of KCCB have been estimated at close to Rs 400 crore. In addition, the outstanding liabilities to other co-operative banks have been estimated to be in the range of Rs 170 crore.

Most of the urban and rural co-operative banks park their statutory liquidity ratio (SLR) obligations with the central bank, since few have the skills to invest in securities. These banks have also been doing this in view of the slightly higher returns they secure compared to Government securities.

KCCB had invested substantial amounts of funds into State Government guaranteed securities as part of the reserve ratio obligations, sources said. All these investments were made prior to the RBI directive, which mandates co-operative banks to maintain their SLR portfolio exclusively in Central Government guaranteed securities, they added.

The bank had also accumulated large volumes of non-performing assets, which had in turn contributed to a tight liquidity situation, the sources added. Last year, NPAs piled up following a fall in crop prices, mainly maize, and a severe drought in parts of the region, which is mainly rain-fed.

Officials of the State Government's apex co-operative bank were in Mumbai in a bid to put together a revival package, sources said.

When contacted Mr Nagaraj, Secretary of the apex co-operative bank, confirmed that a package was being put together. "The revival package is being discussed at the State Government level,'' he said. It is understood that the revival package includes re-finance support from Nabard against the Rs 33 crore crop loan extended by the KCCB. In addition, another Rs 6 crore loan has been sought against the deposit maintained with the State co-operative apex bank.

The board of directors of the bank has already been superseded and currently, the District Commissioner, Dharwar, has assumed charge.

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