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ENS ECONOMIC BUREAU
MUMBAI, SEPT 4: The Central government on an application made by the Reserve Bank of India (RBI) has imposed a second moratorium on Sikkim Bank Ltd (SBL) upto December 3, 1999.
The first moratorium imposed in March this year expired on Friday. Within this time, the merger of SBL with Union Bank of India (UBI) was to have been effected. However, the merger process could not be brought to its logical conclusion as RST Holdings Pvt Ltd, a promoter of SBL, had filed a case in the Calcutta High Court against the merger scheme.
The high court on Friday refused to vacate the interim stay order on the merger proceedings, with the result that the RBI would have been forced to re-open the bank from today. The RBI Act does not permit imposing a second moratorium or extending the earlier one. So the central bank made an application to the Union government which issued orders for the moratorium.
``The moratorium has been declared in public interest, in the interest of the depositors and the banking system,'' the RBIsaid in a statement here today. In spite of the lapse in the moratorium, the apex bank had taken the precaution of prohibiting all transactions in the bank including withdrawal of deposits by depositors. According to the scheme of merger, UBI would be taking over only the assets of SBL and not its liabilities. The depositors would continue to be customers of the bank under UBI. The Sikkim-based bank was once a profit-making one, with its operations largely restricted to the eastern part of the country.
However, alleged mismanagement in the form of indiscriminate lending and other irregularities resulted in the formation of a substantial base of NPAs and in January this year its managing director, Amarnath Mustafi, was sacked by the RBI after serving a show-cause notice to him over the huge loans. He was replaced by Kundu, a Bank of Baroda official, as managing director. Due to the various cases filed before the two high courts, the proposed merger could not be effected before the time limit for themoratorium lapsed.
Sikkim Bank, which has a network of nine branches across the country, was set up under the Sikkim Companies Act. The bank's entire deposit base of Rs 63.72 crore was nearly eroded by reckless sanctioning of loans, according to a committee set up by the RBI to probe the irregularities. Of the deposit base, Rs 57.16 crore was in term deposits, Rs 2.93 crore in savings and Rs 3.63 crore in current deposits.
According to a February report by the RBI-nominated managing director SN Kundu, Sikkim Bank's non-performing assets were estimated to be Rs 60.43 crore, or 95 per cent of its total advances. An RBI-nominated inspection team sent to look at the books had concluded that the bank would be unable to meet its future deposit liabilities. They noted that a bailout exercise was needed by way of capital infusion, renewing of maturing deposits and fresh mobilisation of bulk deposits. Unable to script any alternative bailout plan, the RBI proposed that Sikkim Bank be merged with Union Bank ofIndia. However, this move was stayed.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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