Sugar politics take a bank down
It was not just another tiny cooperative bank running into trouble. It was the apex cooperative bank for the state and a pioneer of cooperative banking in the state. It has a host of district cooperative banks, urban cooperative banks, sugar factories, spinning mills, processing societies and service societies as its constituents, and a collapse would have hurt more. It is led by a galaxy of politicians from Maharashtra including the state’s current deputy chief minister, Ajit Pawar (nephew of Union agriculture minister, Sharad Pawar and his heir apparent to the Nationalist Congress Party in state politics), and a host of members of Pawar’s NCP, who assumed it would give them immunity from the regulators.
Prudence was not a management style practiced or preferred at the bank. So it is payback time now. Since the bank’s functioning has come under the regulator’s scanner, skeletons are tumbling out and the excesses committed by the leadership and management of the bank are glaring. The MSCB had a negative net worth of R294 crore as on March 31, 2010. MSCB’s deposits have gone down 30% to R17,000 crore (March 31, 2011).
The bank has shown profits when it was posting losses, the audit report as well as officials of the state department of cooperatives have said. The Nabard report says the bank’s net loss is at R776 crore. MSCB was downgraded to level ‘D’ in 2009-10, by the statutory auditors as the bank scored 31 out of 100 on various parameters. This is a government grading post-audit, indicating poor health and the need for a serious intervention.
The sugar politics that runs
the state has led to the downfall
of the bank. According to officials of the state department of cooperatives, the bank’s largest exposure was to sugar cooperatives and the next big chunk was with cotton spinning mills,while its
primary responsibility was to
finance district-level cooperative institutions and primary credit
cooperative societies.
So, almost 50% of its credit went to cooperative sugar factories, which account for close to 60% of the NPAs. A majority of the sugar cooperatives are not in good financial health and, naturally, there have been large defaults.
The bank’s 44 member board has been dominated by politicians—25 from Sharad Pawar’s NCP and 14 from the Congress—and most of them have interests or connection with the sugar cooperatives. The Maharashtra state
government guaranteed some of these loans and has been paying the price for it. In one of the cases, the Bombay High Court recently sought an explanation from the Maharashtra government as to why it had failed to take any action against the directors of sugar
cooperative factories that have
defaulted on loan payment and gone into liquidation.
Treating defaulting sugar cooperatives with kid gloves is one of the lesser lapses. Violations of guidelines while lending was the norm. Loans were given without any mortgage, defaults rampant and there was failure in carrying out recoveries. Members of the opposition party, BJP, have alleged that, even in cases where property was seized, there was no auction of these to make recoveries. The party has also highlighted reports of the misuse of bank funds for personal whims, such as the purchase of luxury cars and premiums for special car number plates.
The external administrators have come in now and will have to embark on a massive clean up operation to salvage the bank and get it out of the red. They will have to push for recoveries and act against defaulters. How they proceed over the next few months and how this influences politics in the state will be interesting to watch. The two ruling alliance partners in Maharashtra, Congress and NCP, have already got into a war on this, and this is just the beginning.
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