Large co-ops to revive failed banks

MUMBAI: A failed co-operative bank will now be run by a bigger co-operative bank, and not by a government-appointed administrator. Past failures by government-appointed administrators in reviving failed banks seem to have prompted the move.

The Reserve Bank of India spelt out its stance at a meeting with the Task Force on Co-operative Urban Banks (TAFCUB) last week. The TAFCUB is a representative body comprising regional director (RD) of RBI, Registrar of Co-operative Societies, NAFCUB and the State Federation of the UCBs.

“Instead of having one person from the government to run the show, the idea is to hand over a troubled entity to a group of experts. It can also be another competent bank,” Anil Diggikar, the state’s co-operative commissioner, told ET. The role of the body appointed to run an ailing bank will be purely administrative and no way suggests merger or acquisition, he stated.

“Normally, the government appointed nominees tread very cautiously and have very limited involvement in the bank’s revival. Such a person gives an impression of a caretaker,” said another official. “On the contrary, it will be challenging for another bank to turnaround the sick entity,” he said.

The TAFCUB decision has already translated into a pilot project. Nagpur Mahila Sahakari Bank, which has been under an administrator for the past three years, would soon be run by Dombivli Nagari Sahakari bank, a healthier institution.

Set up in 1975, the Nagpur Mahila Sahakari Bank, run and managed by women, plunged into crisis in September 2004. Having come under the RBI moratorium, the bank was handed over to an administrator in December that year. Though recovery has picked up since then, the TAFCUB thought handing it over to another co-operative bank will hasten the revival.

“It’s a very forward looking move. Another bank running the troubled bank gives an impression that all is not lost. It’s any day better than having a faceless government administrator,” said Satish Marathe of Sahakar Bharati who lobbied for the change for two years.

“We are looking forward to this challenge. The move will certainly set a precedent,” said Uday Karve of Dombvli Nagari Bank. The DNCB has around Rs 900 crore deposits against advances of Rs 545 crore with no NPAs on its book.

“The RBI move will certainly pave the way for rejuvenation of many sinking UCBs across the region,” Mr Marathe said. Of over 2,200 co-operative banks in the country nearly 75% of them are located in four states — Gujarat, Karnataka, Maharashtra and Tamil Nadu. These four states also account for 85% of the deposits and advances of UCBs; around 24 banks have been accorded scheduled status in the region. Maharahtra alone has 666 UCBs of which a large number are loss making and have large NPAs.