Madhavpura Bank issue cripples Ahmedabad clearing

Madhavpura Bank issue cripples Ahmedabad clearing
JYOTSNA BHATNAGAR & NIMISH SHUKLA

AHMEDABAD, MAR 13: The alleged involvement of Ahmedabad-based Madhavpura Mercantile Co-Operative Bank in funding dubious capital market deals on Tuesday led to virtual crippling of the clearing house activities in this market savvy city.

The routine daily clearing in Ahmedabad is pegged at around Rs 1,500 crore. The paralysis of clearing house activities of the Ahmedabad Stock Exchange followed the RBI's unprecedent move of invoking rule eleven against the beleaguered bank. The apex bank has invoked rule eleven in view of the acute liquidity crunch, which the bank has been facing over the past couple of days on account of large scale panic withdrawl of deposits.

According to Reserve Bank of India chief general manager VS Das, "The bank has no cash money to repay depositors." It is believed that the bank is poised to dishonour cheques amounting to a whopping Rs 45 crore in Ahmedabad and another Rs 65 crore in Mumbai as pay order and instrument worth these amount, issued on Monday.

In view of this grave development and fearing large-scale run on deposits, all 24 branches of crisis-ridden, Madhavpura Bank remain closed on Tuesday. Furthermore, even as top officials of the crisis-ridden bank are trying to play down the bank's alleged role in the country's worst ever Sensex crash, directors of the bank themselves are arm-twisting the bank to cough up payments for their personal investments.

It is reliably learnt, from the market sources, that at an early morning meeting of the Madhavpura Bank's top brass here on Tuesday, incensed directors of the bank demanded that their own personal deposits be safeguarded pending which they would not open their branches. It is also understood that the directors were agitated at the manner in which funds of the bank had been allegedly misused by the top brass for their own personal gains.

Ironically, the Reserve Bank of India was till Monday taking the stand that the interest of investors would be protected at all costs. "Repayment of depositors' payments is our top priority," a top RBI official had told The Indian Express

on Monday though in the same breath he had also warned of an imminent liquidity crisis in case provisions had to be made to cough up the total deposits of Madhavpura Bank amounting to Rs 1,220 crore which are currently spread over its 22 branches.

In view of this, the RBI has already sought the assistance of the more than 20 leading cooperative banks in the state to lend all possible support to the bank to enable it to honour its payment obligations towards depositors and investors. On Tuesday, however, the RBI mentioned that no more fund is available from other co-opreative banks.

Interestingly, the regional office of the RBI here has been pleading ignorance of the beleaguered bank's exposures to the stock brokers on the ground that the bank has not furbished this information to them. The apex bank is also apparently unaware of any alleged diversion of funds by the Madhavpura Bank chairman Ramesh Nandlal Parekh.

When questioned on what the prima facie evidence revealed, Das remained tight-lipped, taking recourse to the official line that "investigations are going on. We have submitted report to our central office and waiting the direction."

What is also raising eyebrows in banking circles here is that despite there being no clear cut directives from the RBI for cooperative banks on the disbursal of loans against shares and stock broking activities and despite the fact that periodic quarterly internal audit of these banks is carried out by the Urban Development Cooperative Bank department of the RBI, such large investments against shares were made without the apex bank's knowledge.

Asked whether RBI was in touch with the management of the Madhavpura Bank, Das said that though the RBI had approached the DGM ofthe bank, he had informed the RBI officials of his inability to meet them as "agitated depositors has gheroed

me and my directors".

It may be mentioned that following the Sensex crash, there has been a run on the cooperative bank's monies with bank depositors making a virtual beeline for encashing their deposits with the bank. The panic withdrawals have been triggered off by rumours that the bank had lent money to brokers including big bull Ketan Parikh. Desperate depositors had already withdrawn close to Rs 65 crore from various branches of the bank on Monday itself.