RBI cancels Parekh-tainted Madhavpura Bank’s licence

The bank said an amount of Rs 803 crore constituting 72 per cent of the total advances were unsecured due to unenforceable securities and defective documentation and hence not recoverable.

Written by ENS Economic Bureau | Mumbai | Published: June 8, 2012 1:12 am

The Reserve Bank of India (RBI) has cancelled the banking licence of Ahmedabad-based Madhavpura Mercantile Co-operative Bank Ltd — which was involved in the 2001 stock scam masterminded by stock broker Ketan Parekh — since “all efforts to revive it in close consultation with the government had failed and the depositors were being inconvenienced by continued uncertainty”.

The RBI said statutory inspection of the co-operative bank under Section 35 of the Act revealed that the co-operative bank’s assessed net worth was (-) Rs 1,316.50 crore,CRAR was (-) 1,941.1 per cent,gross NPAs were Rs 1,126.55 crore (almost 99.99 per cent of its gross advances),accumulated losses Rs 1,357.41 crore and deposit erosion 100 per cent.

Replying to an RBI show-cause notice,the bank — which got the licence in 1994 — accepted that the precarious financial position was due to the fraud amounting to Rs 1,200 crore committed by the broking community including Ketan Parekh and associates in collusion with the then board members.

The bank said an amount of Rs 803 crore constituting 72 per cent of the total advances were unsecured due to unenforceable securities and defective documentation and hence not recoverable.

The bank also accepted that the revival scheme failed due to non-fulfillment of commitment of urban cooperative banks (UCBs) to contribute to the Revival Fund because of fear for the safety of their money.

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