Cooperative Banks’ woes: Maharashtra govt to pay Rs 100 crore to MSC Bank to settle loans

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Published: April 2, 2019 1:16:34 AM

In 2011, the Reserve Bank of India suspended the board of MSC Bank after the bank’s net worth turned negative.

It said since there was no provision made in the budget to make such a payment to the bank, it would require the approval of the state legislature, which will meet next only in June.

Top officials of the Maharashtra government said an amount of `100 crore was paid to Maharashtra State Cooperative Bank (MSC) by the government on March 31 through the Consolidated Fund (which is considered an emergency fund) since March 31 was the last date for making the payment.

The Maharashtra government has given an undertaking in the Supreme Court that it will pay a sum of `100 crore to MSC as part of the fulfilment of the guarantee made years ago to sugar cooperatives that it would settle their loans in case they defaulted in payments.

MSC Bank is considered to be the apex cooperative bank of the state.

The state government had extended guarantee to loans issued to millers from the state cooperative bank and the said loans turned bad and remained unpaid. MSC Bank then approached the SC for the recovery of this loan from the state government. Sugar cooperatives in Maharashtra owe the bank nearly `2,000 crore. The government had assured them that it would repay their dues in case they defaulted in payments but they failed to do so. This prompted the bank to filed a writ petition in 2011.

According to a report prepared by the MSC Bank’s claims committee, the government owes the bank `1,050 crore. At the previous hearing, the SC had ordered the state to deposit `250 crore promptly. The state argued in court that `1,000 crore was too enormous an amount to be paid. It said since there was no provision made in the budget to make such a payment to the bank, it would require the approval of the state legislature, which will meet next only in June.

The bank had stated `1,049.49 crore had been found to be payable by the claims committee from an amount of `2,238.20 crore which was claimed by the appellant bank. The counsel for the bank said that no amount had been paid by the government of Maharashtra, as a result of which the appellant bank, i.e MSC Bank, is likely to be declared as a non-performing asset. Being the apex bank for cooperative societies in Maharashtra, this situation is likely to affect the entire cooperative movement in the state.

The MSC Bank is an apex body for 31 district co-operative central banks which have about 3,746 branches, with a third tier of around 21,085 Primary Agriculture Credit Societies (PACS) which directly lend to farmers and the rural population. In 2011, the Reserve Bank of India suspended the board of MSC Bank after the bank’s net worth turned negative.

Since then, MSC Bank has been run by an administrator appointed by the state government. The government has not held an election of its board even after the bank began turning a profit of over `200 crore.

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