The Reserve Bank of India's decision to dissolve the board of directors on the apex state co-operative bank comes not only as a mega embarrassment to the state government but is also likely to widen the differences in the ruling alliance.
It will also give an upper hand to the Opposition in the state, which had been crying foul over the state of affairs at the bank.
The Maharashtra State Co-operative Bank - principal funding agency to all co-operatives - is the apex bank for more than 1,000 agriculture co-operative societies, 33 district banks, 572 urban co-operative banks.
NCP leaders dominate its board though it has directors from Congress and other political parties. "The decision is a slap in the face of the government. The ruling NCP and Congress have been using the bank for personal and political gain. Criminal proceedings should be initiated against the bank for fudging balance sheets,'' said BJP legislator Devendra Phadnavis.
However, the state government on Friday tried desperately to show that the decision was not the result of any fraud in the bank.
Chief minister Prithviraj Chavan said, at a local function in Satara, "The state government fully supports the apex bank and depositors should not panic. Liquidity of the bank is very high. The decision to dissolve the bank was taken to bring in more transparency and to make the bank financially stronger."
Chavan's tone was at variance with that of NCP chief Sharad Pawar, who expressed irritation with the decision and pointed to the responsibility of the state government in the current situation. "The RBI decision is not right. The board of directors of the bank disbursed loans to institutions only after the decision and approval of the state cabinet. The state government has given a guarantee in all these matters."
Pawar said some of these financial institutions had not paid back loans as a result of which Non Performing Assets of the bank had increased.
The co-operatives department in the state rests with the Congress.
"NCP is again being targeted because Ajit Pawar is on the board and also controls the bank. The Congress has joint culpability if the bank is in the red. Congress has been trying to wrest control of MSC Bank for the past 10 years,'' an NCP minister said.
Refuting the official line, Phadnavis alleged that the MSC bank was in the red because loans were handed out on personal and political affiliations instead of financial parameters.