The sound and fury generated by the Nationalist Congress Party (NCP) after the board of directors of the Maharashtra State Cooperative Bank was superseded last Saturday signifies nothing, especially when one goes by the record of the 100-year-old apex bank.
On the directive of the Reserve Bank of India (RBI), the State government superseded the 44-member board and appointed two administrators for the next five years: Dr. S.K. Goyal, Principal Secretary, Agriculture, and Sudhir Shrivastav, Principal Secretary, Planning. The bank, beset with many problems, was controlled by the NCP. Manikrao Patil was its chairperson, with Deputy Chief Minister Ajit Pawar, among other politicians of all hues, on the board of directors.
The Opposition has been demanding action against the directors, including Mr. Pawar. It raised the issue in the budget session of the legislature. NCP president Sharad Pawar and his nephew have reacted adversely to the government's action, and the younger Pawar who feels he is the target, has blamed the move on the Congress' central leadership. Words have flowed thick and fast once again between the two coalition partners, and it was only last week that the two parties had a coordination meeting to sort out their differences.
However, a look at some documents indicates that the RBI directive came after much perseverance with the Bank, with net non-performing assets (NPA) pegged at 7.5 per cent. The annual inspection report by the National Bank for Agriculture and Rural Development (NABARD) has found several shortcomings in the bank's functioning, which was not helped by a negative net worth of minus Rs.144.22 crore on March 31, 2010, down from Rs 44.2 crore in 2009. Eknath Khadse of the Bharatiya Janata Party (BJP) points out that even today, the bank does not have a licence under the Banking Regulation Act, 1949. He says the NABARD report has charged the bank with misuse of power, fudging of accounts, and fiscal and administrative irregularities.
The bank gave loans to units with negative net worth and stacked up losses amounting to Rs. 775.98 crore. The managing director's Honda Accord number plate cost Rs.7,500, and for the chairperson's Skoda's number plate, the cost was higher Rs.75,000. Despite the NABARD recommending that the number of directors be reduced to 28, a 44-member board was elected in 2010. The maximum number of NPAs stemmed from exposure to sugar cooperatives followed by cotton mills, he said.
A statutory audit report for the financial year 2009-2010 points to issues raised in the past audits the high level of NPAs, deficiencies in credit proposals, inordinate delay in loan recovery and non-introduction of audit, stock audit and concurrent audit, among other serious things.
The report found that the bank had violated rules and regulations of the Banking Regulation Act and the Maharashtra State Cooperative Societies Act. For all its flaws, the bank secured a D grade on the audit classification scale.
The RBI had issued eleven modified directions to the bank in a May 29, 2001 letter, but it has not complied with six of them so far. The bank's system of credit appraisal is inadequate as also its monitoring, and follow-up of the credit portfolio is below average. This has led to the high level of NPAs and higher credit risk, the report said.
In addition, the audit found that Vishwajit Patil, son of the bank's chairperson, Manikrao Patil, was given a housing loan in 2006, of which the outstanding on March 31, 2010, was Rs.11,74,166. Mr. Patil's wife and daughter are directors of another private company to which a term loan and cash credit facility was advanced. Nrupal Jayantrao, son of another director Jayantrao Patil, was granted a counter guarantee limit of Rs. 75 lakh and Rs. 2376.02 lakhs for two private limited companies. The bank has also granted loans and advance to units in which directors or their relatives had a stake.
The report noted that the bank did not have any laid-down procedure to process credit applications. The bank's branches forward the loan application to the head office, and the sanctioning authority for loans is a loan committee comprising 14 directors appointed by the Board of Directors. There is poor monitoring and follow-up of loans, and credit is sanctioned to sugar factories or spinning mills having negative net worth. The bank continues to have a large exposure to sugar factories though the performance of the sugar sector is poor and unsatisfactory, the audit report said.
While the move has led to a fresh round of hostilities between the two ruling partners, the Congress is at pains to insist the move is not political and is based on ground realities. State Congress president Manikrao Thakre even suggested that Mr. Ajit Pawar and the Chief Minister sort out their differences by sitting together and clarifying all doubts. The Pawars have been accusing the Congress leadership of deliberately maligning the party and targeting its leaders. The State's cooperative sector has for long been strained by nepotism, poor financial management and irregularities. An inquiry is pending against the Nanded district cooperative bank run by the former Chief Minister, Ashok Chavan's brother-in-law and MP Bhaskarrao Patil Khatgaonkar. The NCP leaders should use this as an opportunity to clean up the sector, which has propelled them into politics and power instead of pointing the finger.