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The 44-member jumbo board of the Maharashtra State Co-operative Bank has been superseded by the State Government on the Reserve Bank of India's directive. The 100-year-old bank has been placed under administration.
The action has been taken as the National Bank for Agriculture and Rural Development, in its annual inspection, found deficiencies in the bank's key financial parameters.
As of March-end 2011, the bank had a negative networth of Rs 144 crore, high level of bad assets (net non-performing assets of 7.5 per cent), high exposure to sugar co-operatives (42 per cent of total loans), and unsatisfactory capital adequacy ratio (this number was not disclosed by the bank). The bank's board has been superseded despite the State providing Rs 270 crore to shore up its networth.
The State Commissioner of Co-operation and Registrar of Co-operative Societies on Saturday appointed two bureaucrats — Dr Sudhir Kumar Goel, Principal Secretary (Agriculture and Marketing), and Mr Sudhir Shrivastava, Principal Secretary (Planning) — as administrators to restore the financial health of the bank.
As of March-end 2011, MSC Bank had deposits aggregating Rs 17,428 crore (94 per cent of the deposits was held by District Central Co-operative Banks — DCCBs — and co-operative societies and the balance 6 per cent by individuals).
The bank had a loan portfolio of Rs 10,478 crore (short-term crop loans: Rs 3,316 crore, refinance to DCCBs: Rs 3,866 crore and loans to co-operative sugar factories: Rs 4,400 crore). Investments in government securities and State Bank deposits/ certificate of deposits (includes investments on behalf of DCCBs) aggregated to Rs 11,986 crore.
Under Section 110 (A) of the Maharashtra State Co-operative Societies Act, 1960, the administrators have five years time to turnaround the fortunes of the bank, said Dr Goel. Besides, making recoveries and improving other key financial parameters, the newly appointed administrators will examine whether auction of co-operative sugar factories (to recover dues) by the bank was actually at prices that reflected the true market valuation.
“The financial condition of the bank is sound and depositors need not have any concern. The administrative board has been appointed primarily to strengthen the financial condition of the bank and bring professionalism and transparency in its work,” Dr Goel said.
The short-term co-operative credit structure in India, comprising 95,633 primary agricultural credit societies at the village level, 370 DCCBs at the intermediate level, and 31 StCBs at the apex level, primarily provide short term crop loans and other working capital loans to farmers and rural artisans.
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