Cooperative Bank depositors’ money is safe but they will have to wait

With mining banned in Goa in 2012, coupled with mismanagement and political muscle-flexing in some cases, the majority of the six major Cooperative Banks in Goa are in red. The Reserve Bank of India (RBI) has come down heavily on two of the major banks the Mapusa Urban Cooperative Bank which has 24 branches and the Madgaum Urban Cooperative Bank which has nine branches with a total of three lakh customers. 

All operations in these banks have been virtually stopped (except in emergency cases with prior written approvals from the RBI) and the only solution to this imbroglio is either to merge with a bigger cooperative bank or go for liquidation. The former, that is merger is more likely to happen as both the banks are in efforts to merge with Punjab and Maharashtra Cooperative (PMC) Bank which has over 150 branches all over the country with six of them in Goa. 

However, the process of merger is at a very nascent stage and it can only take place after there is full due diligence and the final approval of the Board of PMC. PMC has already clarified that they are presently only carrying out due diligence to investigate the financial records of the two ailing banks of Goa- Mapusa Urban Cooperative and Madgaum Urban Cooperative Bank.

The Managing Director of Madgaum Urban Cooperative Bank, Kishor Amonker when quizzed by Herald said, “Before the mining ban in 2012 we were making good profit with a growth rate of 17-18 per cent every year but soon after the ban all cooperative banks started to turn red and as of now today we have a loss of almost Rs 60 crore. This loss is provisioning loss as our NPA was going high.  We have a customer base of 54,000 and these customers will have to wait till the solution of merger with a larger cooperative bank is been found. Their money is safe and they will get the interest too but at the moment neither they can deposit or withdraw as per directions from the RBI.” 

The RBI in its letter dated April 26, 2019 has stated that in exercise of their powers vested under Sub-Section (1) of Section 35 A of the Banking Regulation Act of 1949 (as applicable to Cooperative Societies) read with Section 58 of the Banking Regulation Act, 1949 has directed that the Madgaum Urban Cooperative Bank Ltd from the close of business on May 2, 2019 shall not without prior approval in writing from the RBI grant or renew any loans and advances, make any investment, incur an liability including borrowal of funds and acceptance of fresh deposits, disburse or agree to disburse any payment whether in discharge of its liabilities and obligations or otherwise enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets except to the extent and in the manner provided which is , (1) a sum not exceeding Rs 5000 only of the total balance in every savings bank or current account or any other deposit account by whatever name called may be allowed to be withdrawn by a depositor provided that wherever such depositor is having liability to the bank in any manner either as a borrower or surety the amount may be adjusted first to the relevant borrower accounts; (2) May renew the existing term deposits on maturity in the same name and same capacity; (3) May incur expenditure that may be required to be met by the bank in respect with the following items (a) salaries of employees, (b) rent, rates and taxes (c) electricity bills (d) printing stationery etc (e) postage etc (f) legal expenses comprising stamp duty, registration charges etc (g) Court fee in compliance with the Court orders (h) Payment of fees to lawyers not exceeding Rs 5000 only in each case.

Chandan Nayak a former senior employee of the Madgaum Urban Cooperative Bank who worked for the Bank for 35 years retired in 2017 believes that a through enquiry must be done to find out who and why bad loans without even security sand collateral were given to few, even though there were directives not to give big loans to the mining stakeholders soon after the mining was banned. 

“It is very unfair that even those who want to return some share of the loan amount cannot return to the bank as per the directions of the RBI. At least it should have been allowed so that the bank could recover from some loss. Also, a thorough enquiry should be done on who, why and how did the senior management of the banks gave loans to many stakeholders engaged in mining work even after the mining ban. There were hardly any aggressive recovery efforts made. The RBI had also warned the Bank management two years ago as this Madgaum Urban Cooperative Bank was not a schedule bank,” said Chandan Nayak.

A similar direction has also been sent to Mapusa Urban Cooperative Bank which has a customer base of 2.5 lakhs. Director of the Bank and senior Congress leader, Ramkant Khalap who is the former Union Law minister and deputy Chief Minister of Goa is of the view that the problems with Cooperative Banks in Goa are manifold. “The first culprit is that of the management and that is the public perception and we at the Mapusa Urban Cooperative Bank have openly said that primary responsibility we take it on our shoulders. The Board of the Bank also does get credit for their good deeds as well. If there is any fraud or mismanagement, the RBI audits the bank on an annual basis; the Goa government auditor does the audit every year and then the internal audit. So whosoever wants to investigate, the reports are available. If any action is warranted then please go ahead and take the action,” added Khalap.

Khalap further added that there are external factors too which are responsible for the decay of these Cooperative Banks. “The major external factor was the closure of mining in Goa which happened during Manohar Parrikar’s regime in 2012. Goan Cooperative Banks had been financing mining stakeholders in many ways. Credit was easily available with Cooperative banks. After the closure of mining it had a ripple effect and everything came to a standstill. As of today there is no hope that the mining activity will restart. For last seven, eight years no one is able to pay back to the bank as there is no business. The package by Parrikar’s government also did not help the banks much and all banks lost income on interests. Thankfully we did not finance barges but we did finance truck owners, which were not more than around Rs 25 lakh,” Khalap further stated.  

Khalap informed that Mapusa Urban Cooperative Bank has a gross non-performing asset (NPA) figure for year March 31, 2018 is Rs 30 crore, Goa Urban as about Rs 109 crore, Goa State Cooperative Bank has about Rs 114.65 crore, Madgaum Urban Cooperative Bank has Rs 61 crore, Bicholim Urban Cooperative Bank Rs 16 crore of NPAs which amounts to roughly about Rs 300 crore. The total NPA in Indian banks which includes public sector banks is to the tune of nearly Rs ten lakh crore and Government of India has been pumping money for the survival of these banks. “About Rs 96,000 crore has been given to these public sector banks by the Government of India. Now merger of public sector banks are taking place to consolidate so that the credit flow to the common man remains healthy. So why not on a Cooperative Banks too? It is a state subject and the state government needs to take a call on this. Goa has hardly six cooperative banks,” Khalap concluded.