RBI scraps Madhavpura bank licence

Written by Press Trust of India | New Delhi | Updated: Jun 8 2012, 05:53am hrs
The Reserve Bank of India on Thursday cancelled licence of security scam-tainted Madhavpura Mercantile Cooperative Bank following failure of efforts to revive it.

All efforts to revive it in close consultation with the government had failed and the depositors were being inconvenienced by continued uncertainty," RBI said in its order cancelling the licence of the Ahmedabad-based cooperative bank.

The cooperative bank, was granted a licence by RBI in 1994, resorted to indiscriminate lending, particularly to companies linked to stock broker Ketan Parekh, in gross violation of lending norms during 1999-2000.

In March 2001, there was a sudden run on the cooperative bank following rumours of its large exposure to Ketan Parekh, who suffered huge losses in his share dealings, it said.

The cooperative bank was also holding substantial amount R800 crore of inter-bank deposits from a large number of Urban Cooperative Banks in Gujarat and from other banks and this posed a systemic risk for cooperative banks in Gujarat, it said.

Restructuring scheme initiated in 2001 envisaged infusion of funds, retention of existing deposits, converting call money borrowings from banks/institutions into term deposits, DICGC meeting its obligation in full to the cooperative bank's eligible depositors, investment of fresh deposits in Government securities and management aspects.