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C.R. Sukumar

HYDERABAD, May 15

IN a significant development, the high-power expert committee appointed by the Government to probe the functioning of 158 co-operative banks in Andhra Pradesh has largely held the Reserve Bank of India and the Co-operative Departments responsible for the current plight of co-operative banks plagued by serious asset-liability mismatches.

The co-operative banking sector in Andhra Pradesh, with 158 banks and a deposit base of over Rs 4,000 crore and advances of more than Rs 2,500 crore, ranks fourth in the country after Gujarat, Maharashtra and Karnataka.

Having completed a thorough probe into the books of 44 weak co-operative banks as classified by RBI, the committee, headed by Mr Narsimha Murthy, a chartered accountant and director on the boards of IDBI, UTI and UTI Bank, advised the apex bank to immediately initiate stern action against the managements of 12 banks.

While the 44 weak banks had a deposit base of around Rs 1,000 crore, the 12 banks in question, which were classified as `banks with insincere managements and unviable', had mobilised deposits of over Rs 100 crore.

The measures suggested by the committee include seizure of passports of all the directors and key management personnel and attachment of their personal properties.

Apart from suggesting the regulators to exert pressure on the managements of weak banks to recover loans and discharge liabilities, the committee also suggested coercive steps to ensure recovery of NPAs from the borrowers and beneficiaries.

Sources in the committee told Business Line that key reasons for the current crisis in the urban co-operative banks, as pointed out in its interim report, include lack of trusteeship, low capital base, bogus membership, boards manned by family members, centralised sanctioning powers, irresponsible lending to the kith and kin, management inexperience in banking, lack of appraisal for sanctioning loans and absence of follow-up for recovery.

The other contributing factors include unhealthy and unethical competition created among banks due to the liberalised interest rates, lack of coordination between the Co-operative Department and RBI, imprudent funds management, absence of proper investment policy, lack of internal audit and inspection systems, heavy pre-operative expenses and establishment costs and major failures in the audit system.

The Narsimha Murthy panel advised the regulators to immediately liquidate all the co-operative banks with less than Rs 5-crore deposit base and merge them with other banks or provide time till March 31, 2004 to reach that level and convert those failing into credit societies.

RBI was asked to confer scheduled bank status on UCBs with deposits exceeding Rs 50 crore so as to bring them under closer surveillance and enforce stringent provisions against non-compliance of observations.

The apex bank was also advised to stipulate quarterly results disclosure norms for UCBs.

The committee advised RBI to direct all the UCBs to bring down interest rates within the band of 1.5 per cent to two per cent, stipulate weak banks to take up half yearly audit to facilitate half yearly RBI inspections, advise UCBs to infuse equity or interest-free funds to bridge erosion in the net worth and appoint chartered accountants as auditors from the RBI approved list.

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