Abhyudaya Cooperative Bank sees threefold rise in wilful defaults in one year
- On 31 October 2022, the Mumbai-based cooperative bank reported wilful defaults amounting to ₹132 crore across nine entities, which has risen in the past one year to ₹416 crore
Mumbai: Abhyudaya Cooperative Bank, whose board was superseded by the Reserve Bank of India (RBI), witnessed a threefold increase in wilful defaults in the past one year to ₹416 crore, according to data from TransUnion Cibil. This surge in defaults may have exacerbated its challenges in the lead-up to regulatory action.
These are accounts of ₹25 lakh or more where the bank has initiated legal action for wilful defaults. A borrower is labelled a wilful defaulter when it fails to meet repayment obligations despite having financial capacity to do so.
On 31 October 2022, the Mumbai-based cooperative bank reported wilful defaults amounting to ₹132 crore across nine entities. Data further showed that the count of companies classified as wilful defaulters shot up to 24 within a year.
The bank has seen a decline in its capital adequacy ratio in recent years, dropping from 12.6% in FY20 to 12.01% in FY21, and to 9.02% in FY22, according to RBI data.
Of the defaulters, 23 were from Maharashtra, and one was from Gujarat. Among them are J Square Steels ( ₹88 crore), Saka Embroidery ( ₹52 crore), Swastish Enterprises and Satish Krishnakant Mohole-SKM Food ( ₹47 crore), and Nirman Gold Alloys ( ₹40 crore).
Abhyudaya Cooperative Bank not only has the highest number of defaults among cooperative banks, based on data available from TransUnion Cibil, but also surpasses or is close to several commercial banks with larger asset bases.For instance, Yes Bank’s wilful defaults were at ₹408 crore. HDFC Bank’s, at ₹512 crore, is barely ₹100 crore more than Abhyudaya but the private lender’s assets were 169 times more as on 31 March 2021.
An email query to an RBI spokesperson didn’t elicit any answer. Suhas Gokhale, a member of the advisory panel appointed by the regulator for Abhyudaya Cooperative Bank, did not reply to a text message.
Experts said RBI has restricted regulatory role over urban cooperative banks.
“UCBs are required to report wilful defaulters to credit information companies and submit this data to RBI. The proposed draft directions for treatment of wilful defaulters provides a more stringent mechanism for treatment for wilful defaulters and the directions are applicable to UCBs also,” said Shiju P.V., a senior partner at law firm IndiaLaw LLP.
On 24 November, RBI superseded the board of the multi-state cooperative bank for 12 months, citing concerns over poor governance standards. It had appointed former State Bank of India executive Satya Prakash Pathak as administrator to manage the bank. This is, however, not its first brush with the regulator. In May 2022, RBI imposed a penalty of ₹58 lakh after it delayed reporting a fraud by 942 days and failed to classify loans as bad.
Although the RBI did not explicitly detail the governance issues, it has been a challenge for cooperative banks. After the crisis at the now-defunct Mumbai-based urban cooperative bank, Punjab and Maharashtra Cooperative Bank, in 2019, the government had amended the Banking Regulation Act (applicable to cooperative societies). The amendment, initially via an ordinance in June 2020, gave RBI supervisory powers over cooperative banks. In the six months to May 2023, RBI had penalized 100 cooperative banks.
“Through the supervisory process, we have a close monitoring of the various parameters of the functioning of regulated entities which include governance, business models, risk management, compliance, etc. So, it is a package which monitors the entire functioning of the regulated entities,” RBI deputy governor Rajeshwar Rao told reporters when asked how RBI tackles governance issues at cooperative banks.
Rao said that if governance concerns emerge, RBI engages with the entity to take appropriate action.
As on 31 March 2021 (latest available) the bank had deposits of ₹10,952 crore, as against ₹10,838 crore in the previous fiscal. Its loans and advances were at ₹6,711 crore in FY21, up from ₹6,654 crore in FY20.
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First Published:11 Dec 2023, 11:13 PM IST
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