BoI's Rs 100 cr stuck in Madhavpura Bank

BoI's Rs 100 cr stuck in Madhavpura Bank
ENS ECONOMIC BUREAU

MUMBAI, MAR 28: More skeletons have started tumbling out of the cupboards of the scam-hit Madhavpura Co-operative Bank. Over Rs 100 crore of Bank of India is stuck in the Ahmedabad-based bank which is now under an administrator.

Bank of India has apparently honoured a pay order of over Rs 100 crore issued by Madhavpura Bank which has now sunk following a run on its deposits and huge exposure to the stock market without adequate collateral. It is understood that the big bull who was raided recently encashed this amount and the money found its way into the stock market.

Bank of India is not alone in the hit list. One of the State Bank of India subsidiaries also suffered a loss as the pay order was defaulted by Madhavpura Bank.

According to RBI sources, Bank of India has taken up the issue with the Reserve Bank of India. "Our pay order was defaulted as the RBI asked Madhavpura to meet some other commitments. Now the RBI should step in and clear the situation," BoI sources said.

What happened was Madhavpura Bank issued pay orders (draft which is honoured immediately by banks) in the name of the big bull who encashed it in various banks in Mumbai. This happened before the surfacing of the scandal. "Similar things happened in 1992. It is not surprising that operators have taken advantage of the lax guidelines and regulation governing co-operative banks this time," said a banker.

When contacted, an official of the RBI refused to comment on the exposure of public sector banks in Madhavpura. "Some banks have an exposure in Madhavpura. We're waiting for the RBI inspection of Madhavpura books to get over," the official said.

According to bankers, the RBI would be in a position to file cases against the Madhavpura bank officials and the big bull once the inspection is completed in the next a few days. "It is to be seen how fast they will do it," they said.

Several co-operative banks involved in financing bullion business got into trouble as pay orders issued by them were not backed by adequate securities. The RBI is now inspecting the books of Classic Co-operative Bank which lost heavily in the bullion business.

Madhavpura Bank has reportedly extended huge loans to stock brokers, violating the RBI norm that lending against shares should not cross five per cent of the outstanding loans. The RBI is now likely to tighten the guidelines governing co-operative banks and asks for removal of dual regulatory control on them.