Fintotal News Analysis | Madhavpura Mercantile Co-operative Bank Ltd looses banking license
Madhavpura Mercantile Co-operative Bank Ltd looses banking license
Ruby Jacob, 08 Jun 2012

The RBI has cancelled The Madhavpura Mercantile Co-operative Bank's (MMCB) license with effect from 4th
June 2012. The scheduled urban co-operative bank head quartered in Ahmedabad, Gujarat received its first death-blow in the stock market scam involving Ketan Parekh in 2001. Efforts to revive it through various measures proved to be of no avail.

MMCB commenced banking business in 1994. The bank had seen a huge run on it following rumors of its large exposure to Ketan Parekh, a leading Mumbai based stock broker who suffered major losses in 2001.  A year prior to the unfortunate bank run, the bank had indulged in indiscriminate lending to stock broking firms, in gross violation of lending norms. With closure of business in 2001, the bank's huge pool of depositors and urban co-operative banks who had made deposits in it risked loss. On 23 August 2001 Reconstruction Scheme to revive the bank were approved by the RBI for a period of ten years.

RBI's statutory inspection in 2011 revealed that the bank's gross NPA stands at 99.9% of its gross advances. RBI's notice goes on to divulge, "The co-operative 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".  The bank's current liability stands at Rs 1,500 crore, out of which more than Rs 550 crore it owe to around more than 100 co-operative and scheduled banks and another Rs 127 crore to the depositors.

RBI's notice at this time comes as a surprise to many since proposals for keeping the bank alive were floated by a certain NRI investor who claims was given time of six months in March 2012 by the bank's board of administration to come up with a complete plan. In its notice for cancellation of license the RBI mentions, "It was observed that the co-operative bank was neither aware of the antecedents of the investor nor the genuineness of the sources of the funds". RBI has requested The Central Registrar of Co-operative Societies to initiate the winding up procedure and appoint a liquidator.

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