Whether the allegations stick or not, the ongoing slugfest could, however, stain Naik's campaign for the Thane-Belapur Assembly seat, which he is contesting as an Independent with support from Sharad Pawar's Nationalist Congress Party.

At the launch of the Sena's election campaign in Kopar-Khairne last week, Vitthal More, Sena corporator and member of the Navi Mumbai Municipal Corporation's Standing Committee, had alleged that Naik, whose clout in the township is considerable, had precipitated the crisis bymisappropriating its funds. Local Sena leaders point out that Naik had got several companies in the Thane-Belapur industrial belt to open salary accounts there and the funds deposited thereby have been loaned to persons allegedly close to Naik.

They point out that Naik also heads the Shramik Sena, a workers' union, which has about 50,000 members on its rolls.

On July 10, the KBSB, a cooperative for workers of the Thane-Belapur belt, had received directives under Section 35-A from the Reserve Bank of India (RBI) instructing it to freeze operations. At the time, the bank had deposits amounting to Rs 10 crore. At the KBSB, it was business as usual till May, at both the headquarters at Bonkode in Navi Mumbai and at the Kalwa, Nerul and APMC Market branches. Says A R Kluskar, general manager, KBSB, ``In June, there were heavy withdrawals by account-holders amounting to 50 lakh. This upset the bank's reserve ratio and triggered a payments-delay cycle to the clearing house of Maharashtra State CooperativeBanks.'' When the bank exceeded the credit ceiling of Rs 77 lakh, the clearing house returned the cheques drawn against the KBSB.

``Account-holders and depositors panicked and collectively sought to withdraw their funds. Since the deposits are disbursed as loans, the bank did not have enough liquidity to honour the withdrawals,'' Keluskar explains. Loan recovery too dipped drastically. Says Keluskar, ``First, due to the tight money markets and the financial crunch, default on payments increased. And even if we attached the properties of the defaulters, we were unable to fetch buyers due to the slump in real estate.''

On receiving complaints from customers, the RBI then instructed the deputy director of registrar to conduct an inspection, following which the RBI ordered the bank to freeze operations.

Local Sena leaders and corporators now allege that several of the loans disbursed are not recoverable as they were given without verification at Naik's behest. Counters Naik, ``I was actively involved in thebank's operations till 1995 only (he subsequently resigned from the board of directors when he was inducted in the state government's Council of Ministers) and till then, there was not a single instance of wrongful use of the bank's funds. Even today, neither my family nor I owe the bank a single rupee.''

On allegations that though he is not on the board any more, his influence over the bank is considerable, Naik says: ``Though legally I am not responsible for the improper management of the bank, I accept my moral responsibility towards the depositors who have banked with KBSB because of me. If, after employing all the legal measures, managers are not able to pay the depositors, I shall personally deposit the requisite funds with the bank to repay everybody.''

The Navi Mumbai Municipal Corporation, which is among the biggest account-holders with deposits exceeding Rs 65 lakh, recently encashed fixed deposits of Rs 10 lakh to test the bank's financial health. When these premature withdrawals were honoured,the corporation decided to keep its money with the KBSB till they are due for maturity, beginning October, 1999.

Naik claims he didn't owe the bank anything. ``But if one digs out the list of all the defaulting loan holders, one will have a fair idea about them and which party they belong to,'' he said, hinting at loans taken by Sainiks, including Sena corporators, who allegedly owe the KBSB almost Rs 20 lakh.