For Abhuydaya Cooperative Bank, a small cooperative lender, it was large loans extended to small and medium enterprises that brought Reserve Bank of India into action.
The RBI has replaced the board of the Abhyudaya Cooperative Bank over concerns arising from “mismanagement” and appointed an administrator to manage the lender’s affairs.
According to news agency reports citing sources, many of the concerns stem from the way the bank was managed under the chairmanship of Sandeep Ghandat, its lending to his friends and relatives, reluctance to recover, and unnecessary hiring done to win over voters. in the Parbhani district.
However, the bank lent heavily to SME loan accounts that went bad. More than 80 percent of its lending is to large borrowers.
The bank dragged its debtors Bhagwandas Ispat Private Limited, Shambhu Mahadev Sugar And Allied Industries Ltd, Mithila Cars Pvt Ltd, Trust House Commerce Center Pvt Ltd, Shivkripa Ispat Pvt Ltd and Raphael Engineering Pvt Ltd to the National Company Law Tribunal for recovery under the Insolvency and Bankruptcy Code.
The bank has a deposit base of Rs 10,800 crore and a loan book of Rs 6,400 crore.
Active quality
On the issue of asset quality, the bank management did not act against defaulters despite the ability of the borrowers to pay, reports said, adding that the inaction was due to the close ties between the borrowers and management.
According to data posted by the bank on its website, its net profit declined sharply to Rs 3.54 crore in FY21 from Rs 16.22 crore in the year-ago period.
Overall GNPAs of the bank were around Rs 1,200 crore in March 2023, which was down from Rs 1,550 crore in the year-ago period.
The bank is headquartered in Parel of central Mumbai, which was the heart of the mill land. However, unlike in the case of PMC Bank, the regulator has not placed any restrictions on deposit withdrawals.
The RBI action
The central bank has not put any restrictions or moratorium on deposit withdrawals because of the comfort it gets on the bank’s finances, according to people familiar with the matter.
“(The) action is necessitated due to certain material concerns arising from poor governance standards observed in the bank. No business restrictions have been placed by the RBI and the bank will continue to carry on its normal banking activities,” the Reserve Bank of India said.
It appointed Satya Prakash Pathak, a former chief executive of the State Bank of India, as the administrator.
The central bank has also appointed a committee of advisers to assist him, which includes Venkatesh Hegde (former general manager, SBI); Mahendra Chhajed (Chartered accountant) and Suhas Gokhale (former MD, COSMOS Co-operative Bank).