The Hindu : Nothing prudent about Prudential cooperative bank

Online edition of India's National Newspaper
Friday, Mar 28, 2003

Southern States

Southern States - Andhra Pradesh-Hyderabad

Nothing prudent about Prudential cooperative bank

By Marri Ramu

HYDERABAD March 27. What actually went wrong with Prudential Cooperative Urban Bank? This question is being discussed widely by people even as a majority of the bank's employees assert that all the loans extended are 100 per cent `secured' and `recoverable.'

When the Reserve Bank of India recently issued a set of instructions to the Prudential bank banning withdrawal of more than Rs. 1,000 by a depositor, speculation was rife that misappropriation of funds led to the present crisis. With the collapse of Krushi, Charminar and other cooperative banks still fresh in memory, it was suspected that indiscriminate sanctioning of loans without collateral security resulted in the bank's breakdown.

Confusion clouded clarity about the bank's financial status when scores of the bank employees staged demonstrations in front of the residences of bank directors and some borrowers following the bank's directive. Even as the bank staff accused the directors of receiving commission between 6 and 20 per cent of the loan amount, enquiries reveal that there are other factors, which trigged off the controversy.

During the initial years of its operation, the bank had deposits of Rs. 70 crores to 80 crores with a staff strength of 120. A controversy arose when the management recruited about 150 employees in 1996. With the nationalised banks cutting down interest rates on the deposits and the RBI giving the cooperative banks a free hand in fixing the interest rates, the PCUB received deposits of Rs. 600 crores using the network of the newly-recruited staff.

It is learnt that the management showed an unusual interest and haste in disbursing the newly-acquired deposits in violation of rules. "Normally, we should have confined to Rs. 15 lakhs ceiling. But, our management went on indiscriminately giving crores of rupees loans to either a single group or an individual,'' alleged an employee.

It is alleged that the `commissions' sought by the top managers was the main reason behind lending huge amounts. Panicked by the sudden collapse of various cooperative banks, depositors thronged the bank seeking withdrawal of their premature as well as matured deposits. Meanwhile, the RBI ordered cancellation of inter-bank deposits.

As a result, amounts deposited by other cooperative banks were also withdrawn from the PCUB.

The bank management was accorded autonomy in 1997 after it was brought under the Mutually- Aided Cooperative Societies Act.

With this, the Registrar of Cooperative Societies lost control of monitoring the bank's operation and auditing of accounts. Interestingly, while there were about 40 members in the bank's panel of advocates, only a couple of lawyers were given 90 per cent of the defaulters' cases.

This has raised serious doubts about the management's sincerity in recovering the loans.

Notices to defaulters

After remaining closed for three consecutive days from Monday, all 20 branches of the Prudential bank opened on Thursday. The bank's administrator, Satyanarayana, said Rs. 25 lakhs was paid to 2,500 members. He held a meeting with members of the bank's panel of advocates and discussed the progress of cheque bounce and defaulters' cases pending in the court.

It was decided to issue notices to the defaulters under the Securitisation Act to recover the loans. "I am trying to expedite the process of this recovery by issuing notices and reviewing various litigations," he explained. Though officials did not confirm, sources said the bank received payments of Rs. 6 crores from borrowers on Thursday. This included cheques for Rs. 90 lakhs by Ashok Kumar Goud, brother of the Home Minister, T. Devender Goud.

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