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Madhavpura revival: Centre, RBI lock horns

BS Banking Bureau

The Centre and the Reserve Bank of India are at loggerheads on the revival of the Gujarat-based Madhavpura Mer- cantile Co-operative Bank. While the RBI is in favour of liquidating the bank and setting up a new entity under a new name (Bharatiya Sahakari Bank) and a new board, the Centre has decided to revive the existing bank, which went bust following its massive exposure to Ketan Parekh.

The bank will now be reconstituted under Section 45 of the Deposit Insurance & Credit Guarantee Corporation Act. The RBI has, however, decided against active participation.

DICGC is planning to pump in Rs 4.02 billion against Rs 4.64 billion as had been announced earlier. Sources close to the apex bank said a difference of Rs 620 million in DICGC cover has being created as it follows a different method for calculating liability.

"The entire issue of Madhavpura revival has been politicised. While the RBI wants to liquidate the bank and bring into existence a new entity with a new name and new management, the government strongly feels that it should be revived under its old name as otherwise it would send a wrong signal to the public. The government does not want to give the impression that the Madhavpura bank has failed," said a source in Delhi.

The hunt for a new chairman for the bank is still on. The Central government on June 20 announced a Rs 1,264 package for the beleaguered co-operative bank. With DICGC's contribution pegged at Rs 4.02 billion, the package will now be to the tune of Rs 12.02 billion.

Of this, Rs 8 billion will be contributed by a string of co-operative banks in Gujarat. This money will be guaranteed by the Centre (70 per cent) and the state (30 per cent).

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