MSCB ignored RBI's directive to clean up act

MUMBAI: Mismanagement and abuse of power apart, the NCP-controlled Maharashtra State Cooperative Bank failed to implement RBI directions, the central bank has found. "In March 1996, the RBI issued directions to the MSC Bank, primarily asking it to improve its performance. But when the RBI undertook a review in March 2010, it was observed that the orders were not implemented properly," an official of the cooperation department told TOI. The RBI had asked the MSCB in 1996 to submit a quarterly compliance report to the National Bank for Agriculture and Rural Development. The MSCB, however, did not comply. "There was utter disregard. The RBI had no option but to dissolve the board of directors," the official said. Among other things, the central bank told the MSCB to withdraw the chairman's discretionary powers regarding sanction or withdrawal in excess of limits. "On record the discretionary power was withdrawn on November 8, 1997. But Nabard found that the chairman had allowed rollover of short-term loan to certain institutions without the approval of the loan committee," the official said. The central bank had also directed the MSCB to reduce the number of loan committee members to maximum 15 and ensure the committee's effective functioning. In response, the MSC Bank cut the membership, but never guaranteed the committee's effectiveness. As a result, loans were sanctioned to cooperative sugar factories and spinning mills having negative net worth. When Nabard submitted its report to the MSC Bank on February 24, 2011, the latter's CEO was asked to place the inspection report before the board of directors, prepare point-wise compliance report, place that before the directors and, finally, forward it to Nabard within 45 days. "Prima facie, it appears that the MSCB did not take Nabard seriously. It failed to submit the compliance report to Nabard within the stipulated period," the official said. Most shocking was the fact that while the bank's state was being discussed in the state legislature, the NCP was in the dark over the RBI's move to dissolve the board of directors and appoint administrators. The party came to know of the central bank's directive through the media.