Varied exposure, hedging against sugar losses helped MSC bank regain financial health

In 2011, the apex cooperative bank of the state had come into the limelight due to the rising number of bad loans. The Reserve Bank of India (RBI) had dismissed its board of directors, which had included the then Deputy Chief Minister Ajit Pawar and other political heavyweights.

The dismissal of the board of directors had led to the Prithviraj Chavan-led government losing majority after the NCP withdrew its support. Political leaders, mostly from the Congress and NCP, were directors of the bank. Most of the lending, an audit by NABARD had shown, was done to sugar mills and other cooperative mills not on the basis of merit. A PIL filed in the Bombay High Court had resulted in directions to the state government to investigate the matter. Majority of the bank’s loan book previously was stacked with exposure to the sugar sector.

Anaskar said they had taken a conscious decision to veer away from the sugar sector to derisk the loan portfolio. So, for the financial year 2018-19 the bank had advanced Rs 8,8908 crore to the sugar sector, which for the FE 2021-22 was just Rs 7,811 crore.

On the other hand, its exposure to urban cooperative banks (UCB) in 2018-19 was Rs 1,121 crore, which last fiscal was Rs 3,264 crore. “This way, the UCB can improve its business and also help us increase our exposure,”he said.

Another important business decision taken by the bank was to enter the retail sector. Anaskar said they have decided to cap the share capital of every shareholder to a maximum of Rs 10 crore. “This helps the district central cooperative banks (DCCB) to get hold of liquidity and frees us from paying 10 per cent dividend to the DCCB,” he said. The MSC recently returned Rs 100 crore to the state government’s share capital.

The MSC recently floated tenders to lease out 11 sugar mills. This fiscal, the bank has provided 100 per cent provision for the Rs 2,845 crore advance and has reported zero per cent non-performing assets (NPA). As much as 90 per cent of this exposure is for the sugar sector.