RBI places Nedungadi Bank under moratorium

The RBI order would hit the small depositors of the bank very hard as they will not have access to their own money, say analysts. RBI said that the moratorium would be from November 2 till February 1, 2003, during which period, it would consider various options, including amalgamation of Nedungadi Bank with any other bank —— and finalise plans in public interest and with a view to ensure protection of public deposits, the apex bank said in a release here.

“The functioning of the bank was not in the public interest. The owners, who are also stock brokers themselves had misused banks’ funds and invested money in violation of RBI rules,” said a senior central bank official.

As on March 31st 2001, Nedungadi Bank has deposits of Rs 1,749 crore and its advances were Rs 848 crore. In May last year, RBI had asked Rajendra Banthia, a stockbroker holding about 32 per cent stake in the bank, to step down from the board after an investigation by the apex bank showed that three broking firms had run up transactions worth Rs 1,350 crore between September 1999 and March 2000.

Analysts say the Nedungadi Bank story makes one wonder if the RBI conducts any supervisory function at all. It is only in March 2001 after the Ketan Parekh bubble had burst, that the RBI suddenly swung into action and began to go through Nedungadi’s books with a toothcomb.

During early 90s, Banthia slowly acquired Nedungadi shares held by a group of brokers. He effectively bypassed RBI’s stringent licensing norms and avoided the Rs 100 crore minimum capital requirements to control a bank by buying up the equity for just around Rs 30-odd crore. In fact, the shareholding pattern of Nedungadi Bank itself ought to have worried the central bank. The shareholders comprised an extraordinarily large number of brokers, brokerage firms, finance companies and leasing outfits who clearly control the bank.