MAHARASHTRA HAS A long history of cooperative movement, dating back to the early 20th century. The Bombay Central Cooperative Bank was set up in 1911. Over the following decades, it went through a series of constitutional changes and became the Maharashtra State Cooperative Bank (MSC Bank) in 1961.
Started with the intention of promoting and funding cooperative ventures such as sugar factories and cotton spinning mills, it also helped setting up ancillary and tertiary industries in the state, ranging from agriculture machinery and fertilisers to ethanol-based industries, in turn becoming one of the largest cooperative banks in Asia. But, just as it was marking its centenary in 2011, the bank was caught in a financial turmoil that almost brought it to its knees.
An inspection conducted by the National Bank of Agriculture and Rural Development (NABARD) in 2010 laid bare MSC Bank's non-compliance on various parameters and “lackadaisical” attitude towards addressing issues of supervisory concern, such as loans sanctioned to loss-making cooperative sugar factories without guarantees and factories sold at less than the reserve price. “The bank did not ensure compliance with the prudent banking practices while sanction of loans/working capital limits to sugar and spinning sector. There are deviations from approved credit policy,” said the NABARD report.
MSC Bank's average cost of deposits was 7.6 per cent, while its average yield on investments was 7.27 per cent, the report noted. The capital adequacy ratio was estimated at (–1.5) per cent and the high level of non-performing assets at 31.2 per cent as on March 31, 2010, was a “matter of serious concern”, NABARD noted.
The report also said that the bank had violated the income recognition and asset classification (IRAC) norms, “as a result of which, the accounts did not reflect a true picture of its financial position as on March 31, 2010. “An amount of Rs663.90 crore pertaining to loans and advances (NPAs) and Rs80.35 crore pertaining to overdue interest receivable and provision there against were removed from balance sheet, thereby camouflaging the NPA position,” said the report. NABARD put the bank’s losses at Rs775 crore for the financial year 2009-10, had the bank made requisite provisions as per IRAC norms.
Taking note of the report, the Reserve Bank of India dismissed the MSC Bank board, which comprised 44 elected and 33 nominated directors, and two state government officials were appointed as administrators in 2011. Most of the board members were from various political parties. Former legislator Manikrao Jadhav, who has been fighting for the cause of sugarcane farmers and workers in the cooperative sugar factories, alleged that a majority of the board members were connected to the Nationalist Congress Party.
Since the 1980s, various committees have been set up by the state and Central governments to recommend measures for the revival of the sick cooperative units. Jadhav told THE WEEK that reports by these committees were largely ignored by the bank’s board. “Instead, many of the factories were closed without following the requisite rules and regulations,” he said. “These factories were acquired by elected leaders including Ajit Pawar (NCP leader and former chief minister Sharad Pawar's nephew) through bogus companies.”
Jadhav said the stock of sugar in these factories was never disclosed when these factories were sold, which indirectly helped depress prices.
The alleged scam has come into the spotlight ahead of the upcoming elections in Maharashtra after the Bombay High Court heard the petition filed by activist Surinder Arora and directed the economic offences wing of the Mumbai Police to file a first information report. The Enforcement Directorate, too, has registered an enforcement case information report (ECIR) against Sharad Pawar, Ajit Pawar and other officials of the bank. The NABARD inspection report is expected to be a key document in this investigation.
“One of the glaring illegalities, which is reflected in the findings in the NABARD report as well as charge-sheet under Section 88, is that the loans were sanctioned to the relatives of the directors of the bank and there were no recoveries,” said Arora’s lawyer Satish Talekar. He told THE WEEK that several of the cooperative sugar factories were sold without consulting the sugarcane growers who were the shareholders and many of them were sold well below their reserve price.
“The modus operandi was to first provide grants for starting cooperative sugar factories, then provide term loans without ensuring the paying capacity, then make them sick by not repaying the amount and purposely depriving the benefits of the revival packages, then initiate action under SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act), and sell them at throwaway prices to private entities owned by their own men,” said Talekar.
While the losses to the bank are estimated to be more than Rs1,000 crore, activists allege that the scam is worth more than Rs25,000 crore. In a recent media interaction, Ajit Pawar questioned the figure, stating that when MSC Bank had deposits of just Rs11,000 crore, how could the scam be of Rs25,000 crore.
Talekar, however, said the bank’s losses were just one part of the scam. “The bank had given loans worth Rs2,000 crore. After selling the cooperative sugar factories, the loss that has been calculated by the bank is around Rs1,088 crore. But, the scam is not confined to the loss of the bank but also the money of the government and the public shareholders who had acquired the shares when the factories were set up. At the time of sale of the sugar factories, no amount was returned to the sugarcane growers. Similarly, crores of rupees towards arrears of wages of the sugar factory workers were never paid,” he said.
Maharashtra’s cooperative sector was aided by a three-tier credit structure. MSC Bank was at the helm, followed by 31 district central cooperative banks and more than 21,214 primary agricultural credit societies functioning at the bottom. The sector boomed in the 1970s and 1980s. “At one time, there were more than 202 cooperative sugar factories,” said Jadhav. “Today there are only about 99.”
Jadhav is saddened by the fact that political leaders are exploiting the cooperative sector. He said the investigation should focus on how these cooperative units were fraudulently sold and who benefited from it.
Talekar said political leaders used the cooperative sector to subserve their interests. “Most of the politicians started their careers in the cooperatives as members of village level cooperative societies, chairmen of societies, and then directors of district cooperative banks. Once you become a director, you build contacts and get the ticket of some party. The cooperative sector was used as a plank,” he said.
Almost a decade has now passed since NABARD removed the lid on the irregularities in MSC Bank. But, till date no one has been arrested or punished. With the High Court directing the police to file an FIR and the ED also getting involved, the investigation has got fresh wind.