Calcutta, May 15: The National Bank for Agriculture & Rural Development has recommended denial of a licence to the West Bengal Co-operative Bank as well as a downgrade of its audit classification to B from the A grade.In a report to the Reserve Bank of India in December last year, Nabard has said that the bank flouted several mandatory provisions of the Banking Regulation Act of 1949.
Nabard concluded that the proposal for issuing a licence "may be kept in abeyance" till its financial position improves. The co-operative bank was set up in 1918, long before the Banking Regulation Act of 1966 as applicable to state cooperative banks (AASC) came into force. Under this Act, new banks require a licence to come up while pre-1966 outfits can continue provided they comply with RBI guidelines.
Nabard has apprehended that unless the bank recovers overdues in respect of few big accounts detailed in the inspection report, its net worth will get substantially eroded in 1999-2000.
Nabard has pointed out that the bank has contravened Section 24 of the BRA, which states that, at the closure of any working day, 20 per cent of a bank's total demand & time liabilities should be maintained in cash, gold or unencumbered approved securities valued at current market prices.
The report notes: "The bank defaulted in maintenance of SLR (Statutory Liquidity Ratio) on 30 occasions".
In its inspection report on compliance, Nabard has listed some of the fresh major irregularities that were noted during the inspection on March 31 last year. Among them are --
The bank exceeded the exposure norms regarding financing units outside the co-operative fold;
It had huge debit balance under branch adjustment account and did not take any steps to reconcile it;
Non-performing assets at 18.9 per cent posed a serious credit risk. In fact, the bank did not monitor branch adjustments at all, Nabard says. With a Rs 12.01 crore paid-up capital and Rs 85.48 crore reserves for the year to March 31, 1999, total erosion in the book value of assets has been to the tune of Rs 69.76 crore.The bank has also flouted Sections 19 and 22(3)(b) of the Banking Regulation Act 1949 (AACS) and 42(6)(a) of the RBI Act, 1934. Section 19 of the BRA deals restrictions on nature of subsidiary companies and on the permissions required to be sought from the RBI.After the inspection, Nabard reported that the bank's rating should be lowered to B keeping with the revised norms of audit classification. The rating depends on the aggregate marks secured by the bank in line with the norms for categories like efficiency of management, extent of profit, role in developmental activities, overdues etc.
Shortfall in provisioning has increased to Rs 20.09 crore in fiscal 1998-99 from Rs 10.77 crore in the previous year and Rs 5.16 crore in 1996-97.According to the report, the bank has been regular in submitting statutory returns except in case of off-site surveillance returns. It has also recognised income of a few select cash credit accounts in the Calcutta main branch which, the report says, "has become out of order".
West Bengal co-operation department to meet RBI officials
West Bengal's co-operation department will hold a meeting with RBI and Union finance ministry officials to contain the alarming growth of non-performing assets of the West Bengal Co-operative Bank.
Co-operation minister Bhakti Bhusan Mondal told The Financial Express: "We have warned the bank several times before and we have to take suitable corrective measures before it is bankrupt. We have now decided to take advice from RBI and union finance ministry to contain the rapid increase of NPA."
The bank's statutory auditor has warned that its net worth will be wiped out if it is unable to control the growth of NPA.
During fiscal 1998-99, the bank had outstanding loans and advances of Rs 588 crore, of which Rs 79.64 crore had turned into NPAs. This is likely to increase to around Rs 200 crore in fiscal 2001-02. During 1998-99, Rs 4.33 crore turned bad debt and Rs 2.54 crore of unsecured loans turned bad.Chairman Ashok Bandyopadhyay, who has close links with the ruling CPI(M), declined to comment on the rapid growth of NPA.
SN Basu, managing director, told The Financial Express that NPA provisioning is done according to Nabard guidelines. The bank is owned by the government and giving loans to government agencies is solely the decision of the government and the board. The board is concerned with the growth of NPA.
Loans were sanctioned to state outfits that are close to bankruptcy and have no means to repay the money.
-- Suvesh Sircar
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.