RBI supersedes board of Abhyudaya Cooperative Bank

RBI’s Corrective Steps

• Action is necessitated due to material concerns emanating from poor governance standards
• No business restrictions placed by RBI, bank shall continue to carry on its normal activities
• Newly formed committee of advisors is likely to meet for the first time later this week

Mumbai: The Reserve Bank on Friday last superseded the board of directors of Mumbai-based co-operative lender, Abhyudaya Cooperative Bank, for a period of 12 months. Consequently, the Reserve Bank has appointed Satya Prakash Pathak, former Chief General Manager of State Bank of India as ‘Administrator’ to manage the affairs of the bank during this period. The Reserve Bank has also appointed a ‘committee of advisors’ to assist the administrator for discharging his duties. The members of the ‘committee of advisors’ include Venkatesh Hegde (former General Manager, SBI), Mahendra Chhajed (Chartered Accountant) and Suhas Gokhale (former MD, COSMOS Co-operative Bank), an RBI statement said.

In October, there was a fake document doing the rounds on social media, claiming that RBI had cancelled the licence of Abhyudaya Cooperative Bank. An RBI official had clarified this was not true at the time. The RBI has in the past superseded boards of Yes Bank, Dewan Housing Finance, SREI twins, and Reliance Capital in the past for various reasons.

The above action is necessitated due to certain material concerns emanating from poor governance standards observed in the bank. No business restrictions have been placed by RBI and the bank shall continue to carry on its normal banking activities as is hitherto, under the guidance of the administrator, it added. There is every possibility that the bank will be able to restore its operation. However, it may take a minimum of three years. It is despite the fact that the one year time which has been given by the RBI for the purpose, feel experts.

Talking to Bizz Buzz, Milind Kale, chairman, Cosmos Bank, a Pune-based co-operative bank, says, “I personally believe that the bank will be perfectly alright over a period of three years from now.” The good thing was that there are no restrictions on banking transaction by the RBI. So, the depositors of the bank will have no problem in withdrawing their money from the bank so as to keep it somewhere else, he said.

Commenting on the RBI’s decision to appoint an ex-MD of Cosmos Bank in the committee of advisors of the bank, he said that Mr Gokhale is a seasoned banker and he possesses has a very good experience in bailing a bank out from the crisis. Requesting anonymity, a reliable source, familiar with the development said that overall financial health of the bank is not good.

There is around 2500 staff working in the bank and 2.5 lakh shareholders of the bank. Again, there are around 7,00,000 depositors who have deposited amount worth Rs 10,000 crore in the bank. Its loan-book currently runs in Rs 6,000 crore. Thus, the business mix of the bank stands at Rs 17,000 crore, the source added.

The newly formed committee of advisors is likely to meet for the first time later this week. Interestingly, the RBI’s Financial Stability Report (FSR), released in June this year, showed that under a severe stress scenario, the consolidated capital adequacy ratio or CRAR of scheduled UCBs and non-scheduled UCBs diminishes by 194 basis points (bps) and 345 bps, respectively, for credit default risk and by 341 bps and 320 bps, respectively, for credit concentration risk.