The nodal bank, a stronghold of the Congress-NCP combine, is in deep financial trouble due to its suspicious loan distribution to some of its favoured co-operative banks as well as some loss-making sugar co-operative factories

Maharashtra State Co-operative Bank Ltd (MSCB), the nodal bank for all co-operative banks in the state, is in deep financial trouble due to its suspicious loan distribution to some of its favoured co-operative banks as well as some loss-making sugar co-operative factories.

The apex co-operative bank is scheduled to celebrate its centenary year next month in Pune in the presence of president Pratibhatai Patil and Union agriculture minister Sharad Pawar. The majority of the directors on the bank's 'jumbo' board (44 elected and 33 appointed, a total of 77 directors) belong to the Pawar-led Nationalist Congress Party (NCP). Some ministers from the ruling Congress-NCP combine like Ajit Pawar, Rajendra Shingane, Diliprao Deshmukh, Madan Patil, Hasan Mushrif and powerful leaders such as Vijaysinh Mohite-Patil, Sadashivrao Mandlik, Yashwantrao Gadakh, Prasad Tanpure, Jaywantrao Awale and Dilip Sopal are directors of MSCB.

For FY10, the bank's auditors, Joshi Nair and Associates, have given a 'D' grade to MSCB 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 non-performing assets (NPA) are 20.9%. However, while converting the same into net NPAs, the bank has shown the figure at 7.7%.

Although the auditors refused to share the audit report with Moneylife, according to some media reports, politicians are pressing hard to change MSCB'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.

The bank had to make a provision of Rs768 crore for the NPAs, but it failed to do so. In addition, for the NPAs, it made a provision of around Rs144 crore from its cash reserve instead of showing the same in the profit & loss account.

Banks in India are required to maintain a Capital Adequacy Ratio (CAR) of 9%; however, MSCB's CAR is 8.66%. In the audit report, the bank was able to score just one mark out of 48 marks that are assigned to CAR, loan worthiness, management and income, together. This was the main reason why the bank scored a 'D' grade in the auditor's report.

The MSCB 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 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.

Traditionally, MSCB has been a stronghold of the Congress-NCP. Even the efforts of the then ruling Shiv Sena-BJP combine in 1998 to take control of the apex co-operative bank had failed. The combine's effort to appoint an administrator for MSCB did not materialise at that time.

Earlier, in March, all parties in Maharashtra joined hands for the MSCB elections and got their representatives elected by a seat-sharing formula. This shows why despite very strong 'strictures' from the auditors, no one, including the opposition parties, is willing to speak about it. Given the political pressure and involvement of all parties, one should not be surprised if the Maharashtra government bails out MSCB from this financial mess.