He cruised the bank to good times and is now steering it through bad times. K Rajkumar, general manager, Apex Urban Co-op Bank of Maharashtra & Goa Ltd, recalls his experience of being forced to wind-up a financially strong bank.

Interviewed by Shubha Madhukar.

The Apex Urban Co-operative Bank of Maharashtra and Goa (AUBMG) was registered under the Multi State Co-operative Societies Act, 1984, by the Central Registrar Multi State Co-operative Societies. The bank was granted a licence under section 22 of the Banking Regulations Act, by the Reserve Bank of India on March 22, 1996. On October 30, 2004 the Supreme Court ruled that societies registered for undertaking banking business under this act cannot function as Co-op banks.

What was the reason behind the closure of the bank? Why did RBI cancel its banking licence?
There was no fraud, no misappropriation, no business losses. This is the first case since Independence when a valid licence granted to a banking entity has been cancelled for reasons other than these. It was purely on technical grounds that this licence has been cancelled. And that is rather unfortunate.

What was this technical ground?
Basically the Supreme Court found fault with our administration. It ruled that any co-operative society registered under the Multi State Co-operative Societies Act is not a banking company.

The bank was in profits. The profit was just above approximately Rs 20 crore three years ago, Rs 30 crore or more two years ago, and last year also we made a sufficient amount. A lot of money was in the form of government securities. Today, every paise of all the depositors has been returned and I am talking about Rs 687 crore. The depositors were paid, not by recalling the outstanding advances, but by selling the government securities and the profit on the original capital.

Tell us about the entire liquidation process, how did you manage it?
A knowledgeable committee appointed by the RBI, comprising the Maharashtra State Federation for Urban Co-operative Societies led by Mr Lohiya, National Federation for Urban Co-operative Societies led by Mr D Krishna and a reputed firm of chartered accountants, M/s Surana Jain and Associates supervised the entire process. The disbursements were carried out sensibly under its supervision.

The RBI cancelled our licence on October 29, 2003. On the 30th they just walked in and took away all our framed licences displayed in the premises. Our clearing house membership was cancelled. The cancellation of paying out would have enormous repercussions because there were about 250 banks. 249 of them had deeds locked up in fixed deposits and current accounts.

Supposing we had defaulted in returning this money or we were somehow unable to return this money, we would have taken down these 250 banks as they would have run into liquidity problems, CRR and SLR default and possibly faced a run - it would have been a much greater calamity than GTB - all their depositors would have lost their money, of course subject to the DICGC (Deposit Insurance and Guarantee Corporation of India) covers.

What about the shareholders?
The shareholdings are around Rs 51 crore. After paying the depositors, we still have about Rs 100 crore plus in good advances, another Rs 100 crore in other areas like deposits and real estate worth about Rs 10 crore. All of this put together would be more than enough to return the shareholders amount.

We wanted to pay back our depositors in full with interest up till March 2004, at the original contracted rate - 11, 12 or 13 per cent, whatever, as early as February 2004. But the RBI granted us permission for sale only in May after the elections, when the market was dropping. We lost the benefit of a very good market in the interim two and a half months. Basically, since our treasury team was very strong we were able to come out of the market at 5.37 per cent as against a yield of something like 6.58 per cent today. We worked out an escrow account with HDFC Bank and parked the money there.

When did you pay back the depositors?
The RBI granted us permission for return of payments on July 21, 2004. By July 23, 2004, we had to pay Rs 60 crore. That, too, because the depositors from the interiors of Maharashtra had not come to collect the money. It was an elaborate exercise but it was carried out smoothly. The turnout was 60,000 - not one was retained or misplaced.

I am extremely indebted to Mr Karuppasami, chief general manager, RBI - urban banks department, Worli, who played a pro-active role in getting RBI clearances, for his understanding of the situation and prompt action

Do you see the bank moving towards a merger now?
We are looking towards some probable mergers. We are still left with around Rs 265 crore which is almost the size of any medium co-op bank.

Have you initiated talks for the merger?
Three or four large co-operative banks have shown their interest in taking over. When somebody takes over, the only liability would be the share capital. The bank was in sound health. Even the market, I was surprised to see, did not believe that a co-op bank had such high liquidity to pay out Rs 700 crore in three days. It was actually a huge sum of money that we paid off.

You have seen the bank through thick and thin. How do you feel about the entire crisis?
When you work, you put your heart and soul, you tend to get emotionally attached. You cannot function unemotionally like a machine. I felt disgusted with everything when this statement went against us. But then one tends to learn to live with reality and I felt relieved when I paid off the people. It was a moral responsibility.