The state Cabinet was divided over bailing out the Maharashtra State Cooperative Bank Limited, which is in an unprecedented financial mess allegedly because of its suspicious decisions to give loans to smaller banks and loss-making sugar factories.
The ruling Nationalist Congress Party dominates the bank’s board. Congress ministers insisted that the bank amend its business model. When chief minister Prithviraj Chavan approved this demand, the Cabinet asked the bank to furnish its accounts and future plans if it wanted the government to offer bank guarantees.
The Cabinet approved of a bank guarantee of Rs270 crore on the condition that the bank submits accounts to the government for further review. The bank needs a total bank guarantee of Rs1,170 crore.
The 50-year-old MSCB is the nodal bank for all cooperative banks in the state but has run into financial trouble since several loss-making sugar factories and banks defaulted on repayments. The bank’s non-performing assets are very high and auditors have classified it as an inefficient performer.
At Wednesday’s meeting, Congress minister Narayan Rane questioned the loans the bank had extended to dubious customers. A senior minister, who attended the meeting, said, “Non-performing assets are increasing every day. They did not follow the national banking rules and regulations.”
Deputy chief minister Ajit Pawar, who controls the bank, said, “The bank may have committed mistakes in the past. But it’s doing well now and hence we need to help.”