RBI cancels licence of scam-tainted Madhavpura Mercantile Bank



Over past 10 years, the Bank's reconstruction scheme did not make much progress mainly due to non-fulfillment of commitments for contribution to revival fund by UCBs and poor track record of recovery including from Ketan Parekh

New Delhi: The Reserve Bank of India has cancelled licence of security scam-tainted Madhavpura Mercantile Cooperative Bank following failure of efforts to revive it, reports PTI.
"All efforts to revive it in close consultation with the Government of India had failed and the depositors were being inconvenienced by continued uncertainty," RBI said in its order cancelling the licence of the Ahmedabad-based cooperative bank.
The cooperative bank, was granted a licence by RBI in 1994, resorted to indiscriminate lending, particularly to companies linked to stock broker Ketan Parekh, in gross violation of lending norms during 1999-2000.
In March 2001, there was a sudden run on the cooperative bank following rumours of its large exposure to Ketan Parekh, a leading stock broker at Mumbai, who suffered huge losses in his share dealings, it said.
The cooperative bank was also holding substantial amount Rs800 crore of inter-bank deposits from a large number of Urban Cooperative Banks in Gujarat and from other banks and this posed a systemic risk for cooperative banks in Gujarat, it said.
The restructuring scheme initiated in 2001 envisaged infusion of funds, retention of existing deposits, converting call money borrowings from banks/institutions into term deposits, DICGC meeting its obligation in full to the cooperative bank's eligible depositors, investment of fresh deposits in Government securities, management aspects etc.
"During the period of 10 years, the Reconstruction Scheme did not make much progress mainly due to non-fulfillment of commitments for contribution to Revival Fund by UCBs and poor track record of recovery including from Ketan Parekh. The scheme expired on August 23, 2011," it said.
As of March 2011, the bank's assessed net worth was negative Rs1,316.50 crore, gross NPAs was 99.99%of its total advances of Rs1,126.59 crore. The bank had accumulated losses at Rs1,357.41 crore. The deposits of the bank have been eroded fully at the end of March 2011.
In view of the precarious financial position of the cooperative bank, a show cause notice was issued by RBI on 16 March 2012 asking it as to why the licence granted to it to carry on banking business in India should not be cancelled.
The cooperative bank in its reply dated 18th April, accepted that the precarious financial position of the cooperative bank which was attributed to the fraud amounting to Rs1,200 crore committed on the cooperative bank by the share broking community including Ketan Parekh and his associates in collusion with the then members of the Board of Directors, the RBI statement said.
As per the bank, it said, an amount of Rs803 crore constituting 72% of the total advances were unsecured due to unenforceable securities and defective documentation and hence not recoverable.
The cooperative bank has admitted that the revival of the bank failed due to difficulty in mobilising revival fund from the contributing UCBs and poor track record of recovery particularly from the Ketan Parekh group, it said.
The statement also said that the cooperative bank had furnished another revival plan envisaging a loan of Rs1,000 crore from World Bank or European Banks which will be procured by an NRI who will invest Rs500 crore for the next 10 years in the form of preference shares totaling Rs5,000 crore.
"It was observed that the cooperative bank was neither aware of the antecedents of the investor nor the genuineness of the sources of the funds," it said.
The cooperative bank was not sure whether the proposal will result in a turnaround for the cooperative bank by making its net worth positive, it said, adding, the proposal is also not in conformity with the bye-laws of the bank for allotment of preference shares to an investor who is not a loanee.


RBI says no proof that slowdown is due to high interest rates


RBI deputy governor Dr Chakrabarty said he do not know how much growth sacrifice is due to lack of productivity, lack of efficiency, and how much is it due to inflation

Mumbai: Reserve Bank of India (RBI) deputy governor Dr KC Chakrabarty on Friday sought to stave off criticism that the nine-year low gross domestic product (GDP) growth was primarily due to the 20-month high interest rate regime, saying it was driven by a host of other factors, reports PTI.


"I don't think that the interest rates are that high, or our policy rates are that high that should significantly affect growth. Growth is being affected for a variety of reasons. We are overplaying the interest rate aspect (for low growth). It may be one of the reasons," Dr Chakrabarty told the Skoch summit.


Buttressing his point further he said, "I don't know how much growth sacrifice is due to lack of productivity, lack of efficiency, and how much is it due to inflation."


At 6.5%, the economy slumped to the lowest rate in the past nine years in FY12, and many have blamed the Reserve Bank's tight monetary policy, coupled with the policy paralysis and lack of strong political will at the Centre as the reasons for the poor show.


Between March 2010 and October 2011, the RBI ramped up its key lending rates by a whopping 375 basis points in a 13 uninterrupted rate hikes cyle to batten down inflation which was near double-digits. But ironically, price index still hovers near 8%, while growth has plunged, inviting criticism from many quarters, especially the industry.


However, Dr Chakrabarty admitted that interest rates do affect growth, saying "what we are saying why interest rates affect growth is because inflation affects growth. If inflation comes down, interest rate will also come down. But to say that growth is only going (down) because of high interest rates is a little bit exaggeration and we must look into that."


"If inflation comes down, definitely monetary policy rate will come down," he said, adding that "for the Reserve Bank, the first priority is inflation. It is not only growth, we have a multiple indicator approach. But, inflation is definitely the major concerns."


Arguing that even a 2% drop in interest rates by the RBI will not majorly help bring down cost for corporates, he said, "6%-7% of overall cost for a any company is the interest cost. Even by reducing interest by 2%, their cost is not going to be impacted."


Countering the view that low GDP growth was driven by low investment growth, he said the GDP growth in fact came off the 2002-08 highs due to poor manufacturing growth.


"Our manufacturing growth used to be at one stage 8%-9%. That means we have a capacity of 8%-9%. Now it is only 2%-3%. If so, where is the question of additional investment? Immediately you can ramp up manufacturing growth, as there is an output gap," the deputy governor said.


On the impact on global economy with a possible exit by Greece from the Eurozone, he said, "It will have some impact, adverse impact that is all I can say," adding that if there is any problem arising from this, then the government and RBI will switch to their contingency plan.


SEBI chief calls for urgent reform measures to revive growth, sentiment


UK Sinha said India has still time to tide over the present growth deceleration if it moves ahead with some of the urgent reform measures and resolve the issues plaguing the implementation side

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) on Friday called for accelerating policy reforms like pension bill to revive investor sentiment and faltering growth, reports PTI.
Calling for an urgent need to revive investor sentiment to revive the faltering growth, SEBI Chairman Upendra Kumar (UK) Sinha said, "Some of the reforms, which have long been pending, and one example being pension reforms... it has been years and years that some of these reforms...are yet to come through." 
"And that is something all of us have to counter very seriously, that how long can we go on deferring this?" 
Addressing the Skoch summit, Sinha said the country has still time to tide over the present growth deceleration if we move ahead with some of the urgent reform measures and resolve the issues plaguing the implementation side.
"If we start making some progress on these things (reforms), then in spite of the forecast about our economy coming down from the higher levels of 2007-08; if these policies change ... start happening, we can again come to levels which are commendable in comparison to any part of the world. (But) those changes have to take place," he said.
The GDP growth hit a nine-year low in FY12 at 6.5% due to a number of reasons, which many cite as policy paralysis and lack clarity on policy.
This has led to almost all the foreign banks and analysts such as Goldman Sachs, Morgan Stanley, Citi and HSBC, among others, to lower FY13 GDP growth to a low of 5.8%-6.3%.
Admitting that a part of our problems are imported, Sinha, however, said, "We cannot become complacent about policy making and implementation domestically." 
Stating that there is no reason why even private parties are not able to implement their projects on time, he said, "I am bewildered that if an agreement has been signed between a raw material supplier and a utility, why it is not being honoured." 
According to a CMIE estimate, as many as Rs5 trillion worth of projects, mostly in the power and steel sectors and running into 500 projects, were stalled in FY12 due for want of mandatory clearances, fuel, raw material linkages, etc.
Listing out the reform steps that are needed urgently, he said, "We all know what happened to FDI in retail, the PFRDA Bill, and the pension reforms are yet another examples.
"Passing the PFRDA Bill is not an end in itself, in my view it will serve a purpose, but a limited one. The more important thing is the largest pension funds in the country, which are being managed under a Central law, are they being reformed or not? The Pfrda Bill will not reform that," he said.
Yesterday, the government deferred the Pension Bill, that seeks to open up the sector to foreign and private investment, as the key ruling front ally Trinamool Congress put a spanner on the Regulatory and Development Authority Bill of 2011.
Noting that the EPFO has 40 million accounts amounting to a whopping Rs2 lakh crore in funds, Sinha said, "If a small portion of that money starts coming into the market, (it means a lot, but) that money is not coming, that reform is not happening." 
Regretting that the high interest rates that the EPFO offers is hurting the whole sector, he said the corporates which manage their own pension funds are not able to match the interest rate announced by the EPFO and have to fund it by themselves.


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