The Hindu Business Line : 2 more co-op banks to be superseded

THE Registrar of Co-operatives of Maharashtra will supersede the boards of Wardha District Co-operative Bank and Osamanabad District Co-operative Bank and appoint administrators for the banks as per the recommendations of the RBI following the government securities scam.

"RBI today asked RCS to dissolve the boards of both Wardha and Osmanabad banks and appoint administrators, one for each bank", State Government sources told PTI.

Meanwhile, the Economic Offences Wing of Mumbai police has registered yet another case against the directors of Home Trade Ltd, a broking firm, on charges of cheating Raghuvanshi Co-operative Bank Ltd for around Rs 6 crore.

The EOW had earlier registered a case against Home Trade following a complaint by Mr Pawanraje Nimbalkar, Cairman of Osmanabad bank of duping the bank for G-secs worth Rs 30 crore.

The Wardha District Co-operative Bank has been allegedly deceived to the tune of Rs 25 crore in the G-secs scam.

"This is a mere tip of an iceberg. We expect more co-operative banks to have fallen prey to this Home Trade fraud", senior EOW officials said.

Meanwhile portfolio management in gilts by commercial banks on behalf of co-operative banks is being mooted as a measure to avert recurrence of scams in government securities.

Currently, portfolio management in gilts is not permitted by banks except in special cases. However, some banks buy and sell securities on behalf of urban co-operative banks (UCBs) on instructions.

Allowing banks to undertake management of gilt portfolio of small UCBs is expected to help break the nexus between banks and brokers, the main conduit in such frauds. According to market sources, the RBI is examining the suggestion.

As smaller co-operative banks operating in remote areas lack expertise in dealing with gilts, brokers dump them with illiquid stocks at high prices.

Several co-operative banks are said to be involved in the latest scam losing around Rs 400 crore on account for fraudulent deals placed directly with brokerage firms for investment in gilts. In fact, SEBI had recently suspended the brokerage firm Home Trade over transactions that the RBI had termed `fraudulent.'

The National Federation of Urban Co-operatives Banks has asked the RBI not to allow smaller urban co-operative banks to deal in government securities directly, unless they had the required expertise.

According to the federation, the norms for SLR investment for smaller urban co-operative banks should be relaxed further. The banks located in far-flung places having relatively no experience in investing in gilts, find it difficult to invest in gilts particularly in small amounts.

In a communication to the RBI, the federation has said that most of co-operative banks involved in the recent gilts scam were district central co-operative banks which were not compelled to invest in government securities.

Several UCBs which struck deals through brokers are now stuck with illiquid stocks or have paid high prices for their securities, said one official.

The federation has also asked the Reserve Bank to streamline the system to ensure the co-operative banks abide by the RBI guidelines.

Meanwhile, Mr Kirit Somaiya, BJP MP and President of Investors' Grievances Forum has demanded that the entire investigation in the gilt scam be handed over to the CBI.

Mr Somaiya said that the gilts scam involved a sum of over Rs 400 crore of around 17 co-operative banks covering Maharashtra and Gujarat.

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