The action by the RBI to supersede the board of directors of the MSC Bank and to appoint administrators has highlighted the need to bring all co-operative banks, a majority of which are controlled by politicians, under the central bank's direct control
Over the weekend, the Reserve Bank of India (RBI) superseded the board of directors of the Maharashtra State Co-operative Bank Ltd (MSCB), the nodal bank for all co-operative banks in the state and appointed administrators. This has brought forward the infighting between the Indian National Congress and the Nationalist Congress Party (NCP), the ruling partners in Maharashtra. More about this later.
Moneylife had written about the financial mess in the MSC Bank caused due to the bank's suspicious loan distribution to some of its favoured co-operative banks as well as some loss-making sugar co-operative factories. (Read Maharashtra's apex co-operative bank in financial turmoil )
While the RBI regulates all banks in the country, the co-operative department of state governments, however, has direct control of co-operative banks. A majority of these co-operative banks have become virtual fiefdoms of politicians, who grant loans to themselves, their friends and relatives. Many co-operative banks do not even follow the prudential governance norms for non-performing assets (NPAs).
In the case of MSC Bank, the RBI took action after finding deficiencies in the bank's annual inspection report prepared by the National Bank for Agriculture and Rural Development (NABARD).
For FY10, the bank's auditors, Joshi Nair and Associates, have given a 'D' grade to MSC Bank as it could score only 31 marks out of 100, based on various parameters. As per the provisional figures provided on the bank's site, for FY10, its gross NPAs were 20.9%. However, while converting the same into net NPAs, the bank had shown the figure at 7.7%!
Although the auditors refused to share the audit report with Moneylife, according to some media reports, politicians were pressing hard to change MSC Bank's audit grade to 'C' from 'D' as a damage-control measure. The bank has shown deposits of Rs21,500 crore and a net profit of Rs2.83 crore. However, according to the audit report, the bank had to suffer a loss of Rs1,070 crore, mainly due to NPAs.
According to the statutory audit report for 2009-10, MSC Bank had negative net worth of Rs144.22 crore, while its deposits were Rs17,428 crore, out of which deposits in current and savings account (CASA) were just Rs1,340 crore. The bank has a cash balance of Rs1,350 crore and it has its own funds of Rs3,053 crore. The bank has given loans of Rs10,478 crore.
Last year, the RBI appointed an expert panel, under YH Malegam, for granting new licences to co-operative banks. Even the High Court has passed on strictures on status of co-operative banks in Maharashtra. On 15 May 2010, Justice AB Chaudhari of the Nagpur Bench of the Bombay High Court, said, "It is a matter of concern, particularly in the state of Maharashtra, that crores of rupees of public money have been lost due to fraud played in co-operative banks."
The directions issued by the state from time to time to invest or deposit the money with cooperative banks require a serious reconsideration and, in my opinion, recall thereof in order to avoid further loss of public money," Justice Chaudhari said while hearing a petition filed by the Municipal Commissioner of Akola.
Last year in September, after Moneylife published the report about the financial turmoil in MSC Bank, several co-operative housing societies withdrew their money deposited with the bank. At that time, Vinod Sampat, advocate and founder, Vinod C Sampat and Co, had said that the profit claimed by MSCB was nothing but "window dressing." He had said, "Co-operative banks are not following proper laws and are not run on a professional basis. There is lack of accountability and they are surviving because of monopoly and patronage of the co-operative department. No one likes to invest in a co-operative bank, but they are forced to do so under the statutory rules. There is a lot of political interference also. It is full of double-standards."
Previously, co-operative housing societies were mandated by the law to park their funds with a co-operative bank only. Housing societies from Mumbai alone had deposited their funds, worth crores of rupees with the MSC Bank. Although the state government had tried to assure depositors, the maximum amount the depositors will get, in case of default, is capped at Rs1 lakh.
Now, let us examine the political side of the co-operative sector, particularly in Maharashtra. The state is one of the major beneficiaries of the co-operative movement, which brought forward tremendous changes in financial, social and political status of farmers. The co-operative movement in Maharashtra played a significant role in changing the economic conditions in the fields of rural credit, agricultural marketing, small-scale and village industries, farming, housing and consumer societies.
Unfortunately, there is increased political interference, so much so that almost all co-operative banks, sugar factories and credit societies have some politician as chief patron. This has caused massive corruption, poor management (or no management at all), which ultimately resulted in turmoil in many co-operative banks, sugar factories and societies. In such a scenario, it was impossible for MSC Bank to remain untouched by political interference.
Over the years, MSC Bank has remained a stronghold of Congress leaders, so much that during 1998, the then ruling Shiv Sena-BJP combine's determined efforts to take control of the bank failed miserably. Even the combine's effort to appoint an administrator failed to materialise at that time.
Last year in March, all political parties in Maharashtra joined hands and elected their representatives by adopting a seat-sharing formula. This resulted in a jumbo board of directors at MSC Bank. Before being superseded, the board had 77 directors, out of which 44 were elected and 33 appointed. Maharashtra deputy chief minister Ajit Pawar is one of the directors.
Several 'powerful' leaders like Rajendra Shingane, Vijaysinh Mohite-Patil, Sadashivrao Mandlik, Yashwantrao Gadakh, Prasad Tanpure, Diliprao Deshmukh, Madan Patil, Hasan Mushrif, Jaywantrao Awale and Dilip Sopal were directors of the MSC Bank. However, NCP, through its leader-directors, virtually controls the nodal bank. NCP's election symbol is the 'clock' and in Marathi, 'Aata Wajale Ki Baara', which loosely translates into 'your time is over'.
Although the ruling alliance of the Congress and NCP controls the MSC Bank, Ajit Pawar, on the other hand, had accused senior leaders of the Congress from New Delhi to be behind the appointment of administrators. At the same time, Congress leaders pointed out that following the report from NABARD (which is regulated by the Ministry of Agriculture-and thus under the control of NCP head Sharad Pawar, the paternal uncle of Ajit Pawar), RBI took action against the MSC Bank.
In short, Congress leaders are highlighting the so-called tussle between the uncle and nephew, as the reason for RBI's action. Both are conveniently forgetting the financial turmoil and mess created by them in the MSC Bank.
Anyway, now since the RBI has superseded the board of directors and the state government appointed two administrators, Dr Sudhir Kumar Goel, principal secretary of agriculture and marketing and Sudhir Shrivastava, principal secretary, planning department, we can only wait and watch, if they will be able to resurrect the nodal bank.
The MSC Bank is the apex co-operative bank in the state since 1954 and has initiated major schemes for the co-operative banking sector in India. It has been helping agricultural credit co-operatives and agricultural processing co-operatives. The bank provides a re-finance facility to District Central Co-operative Banks, which cater to the agricultural sector.
It also promotes finance to artisans and agro-industrial co-operatives-especially sugar factories and spinning mills by providing them medium-term loans as well as interim loans.
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The commercials are one big dud. There is zero motivation provided in the ads to the parents to send their kids to school. Which ought to have been the primary task of the communication
UNICEF (United Nations Children's Fund) has released a massive ad campaign that promotes the right of every child to education. Each commercial (and there are many) deals with the message that every Indian child can now get access to schooling… easily, fairly and freely.
All the ads are set in rural areas, which is where children usually skip going to school. And so that's the correct strategy. The ads essentially feature happy village kids zipping off to school, and enjoying going for classes. The ads also bring out the message that children do want to study, but get discouraged by myriad social mores.
UNICEF's ads attempt to deal with the many hurdles that prevent children from getting access to education. Caste discrimination, gender discrimination, physical disability, etc. 'Ab Padhna Pakka!' is the core communication. The one slightly cute ad in my books is where a little child constantly asks his illiterate dad many niggling questions (as children usually do), but the man is unable to answer them.
All very fine, dandy and honourable. But I am very sorry to report that while the intention is noble, UNICEF fails miserably in the delivery of the message. The commercials are one big dud, and that means a whole lot of money down the drain. Here's the big flaw in the communication: there is zero motivation provided in the ads to the parents to send their kids to school. Which ought to have been the primary task of the communication. All we are told is children should go to school but there's no 'reason why' provided in the ads.
I daresay, most poor villagers are well aware schools are a good idea, but don't send their kids because of their poverty-stricken lives, and the need for 'all hands on the deck' in the household and job-related work. The communication should, therefore, have mainly focussed on how education can change the lives of their children, of what they can become in life. This was not to be, sadly. The ads remain at the level of 'please send the bachchas for padhai'. Yes, there's enough sing-song in the ads, but they remain preachy. And am afraid that route will cut no ice with a poor peasant who has no idea where his next meal is going to come from.
Of course, ab padhna pakka hona chahiye. Magar kyon?
The market is facing pressures as policymakers grapple with ways to control rising prices
The local market is likely to open on a cautious note as economic concerns is pressurising the market. However, a rise in commodity prices resulted in US stock prices ending higher on Monday while markets in Asia were mixed on renewed worries about debt issues in Greece. The SGX Nifty was 14.50 points lower at 5,540.50 compared to its previous close of 5,555.
The market opened with gains on Monday following last week’s sell-off in commodities, especially crude, easing the government’s worries about higher prices. The Sensex and Nifty opened positive at 18,629 and 5,575. Immediately the market hit its respective intra-day high, which was higher than Friday’s high, at 18,644 and 5,586. A firming trend in the Asian markets also boosted investor sentiment here.
The market, however, soon started showing a falling trend amid choppy trade. In the morning session itself the market hit its intra-day low at 18,367 and 5,502. Immediately thereafter the indices hot up, but lack of direction ensured that the benchmarks stayed near at the same level as yesterday. However, the market doesn’t have the strength to rally much. The Sensex rose 10 points to close at 18,529 while the Nifty fell 0.35 points at 5,551. For whatever it is worth, for the second day in a row, the market has made a higher high and a higher low.
US markets finished higher overnight, fuelled by rising crude prices, after the sharp decline last week. Traders opined that the gain in commodities is seen attracting investors back to riskier assets. In deal-related news, Dollar Thrifty Automotive Group shares gained 14% after Hertz Global Holdings offered to buy the car-rental company in a deal valued at $2.36 billion in cash and stock. Biotechnology company Alkermes climbed 5% after saying it would buy a drug-technology unit of Irish drug maker Elan in a cash-and-stock deal valued at $960 million.
On the other side, concerns over Greece’s debt burden surfaced once again after ratings company Standard & Poor's cut Greece's long-term credit rating to ‘single-B’ from ‘double-B-minus’. The downgrade reflects the likelihood that Greece’s official creditors, led by the German government, may soon force private bondholders to accept an extension on Greek debt repayments coming due in the next few years.
Oil prices rebounded as US light crude rose 5.53% to close at $102.55 a barrel and Brent crude in London surged 6.2% to close at $115.90. Among precious metals, silver gained 5.2% on Monday to close at $37.11 an ounce, while gold closed up about 0.8% to 1%.
The Dow gained 45.94 points (0.36%) at 12,684.68. The S&P 500 added 6.09 points (0.45%) at 1,346.29 and the Nasdaq rose 15.69 points (0.55%) at 2,843.25.
Markets in Asia were mixed in early trade on Tuesday on fresh concerns about the debt problems in Greece and the fears of power outages in Japan, which is likely to impact production.
The Shanghai Composite gained 0.35%, the Hong Kong rose 0.76%, the Jakarta Composite climbed 0.26%, the KLSE Composite was up 0.12%, the Straits Times advanced 0.32% and the Taiwan Weighted added 0.14%. On the other hand, the Nikkei 225 fell 0.24% and then Seoul Composite declined 0.39%.
Ratings agency Crisil on Monday said microfinance industry could see market consolidation due to pressure on operating margins, even as the RBI’s decision to allow it priority status in securing bank loans would help ease liquidity problems.
The MFIs are facing liquidity crunch on banks’ reluctance to provide them loans after a strict legislation in Andhra Pradesh, their main market that accounts for about 25% of their business, hemmed their operations and negatively impacted their revenue.