Co-operative Banks licence cancellation



CKP CO-OPERATIVE BANK LIQUIDATION

CKP co-operative Bank Licence has been cancelled and winding up proceedings have commenced as notified by RBI on 30th April 2020. 

So, out of Rs.485 cr deposits as on 31.03.2020, how much money will be refunded to depositors? A small work out is as under:

i) Individual Depositors holding deposits upto Rs.5 lacs - Rs.365 cr.
ii) No. of depositors holding deposits in excess of Rs.5 lacs - 1120 (As per Mint paper report)
iii) Deposits in (ii) protected upto DICGC (1120*5)           - Rs.56 cr
iv) Total Deposits not protected by DICGC = 485-(365+56)= Rs.64 cr.

As against the above protection given, DICGC has the following right of subrogation over the following: (as per balance sheet as on 31.03.2019)
 
i) cash and balances with RBI = 25 cr
ii) Investments (SLR?)     = 272 cr
iii) Loans and Advances = 171 cr
iv) Fixed Assets = 34 cr
totalling Rs.472 cr. 

Excluding Advances shown above, DICGC is likely to realise Rs.331 cr.  In the loans and advances also, the bank has securities in its possession worth Rs.60 cr. and so DICGC's shortfall is likely to be restricted to Rs.30 cr.(Total payout = 365+56=421 minus realisation Rs.391 cr minimum)

If one adds DICGC shortfall Rs.30 cr with the depositors money unsecured Rs.64 cr, the winding up is ordered for a shortfall of Rs.94 cr. 

As the shortfall is small, whether RBI could have exercised the option of merging this bank with any other urban bank/commercial bank. Debatable as the bank was under watch from 2012, the figures given by me is also based on the published financial results of the bank as on 31.03.2019 and paper reports (on the number of depositors holding deposits of above Rs.5 lacs). And the real story might be different.

But the above issue brings to the intriguing question of the fate of PMC Bank, where the recast balance sheet as on 31.03.2019 indicates that the liabilities are in excess of assets (by book value), by more than Rs.2000 cr.  This will increase to the extent of shortfall in realisation of loans and advances stated at Rs.4912 cr.  The burden will be quite heavy on DICGC as the bank was only put under moratorium and  depositors holding balances upto Rs.5 lacs (instead of upto Rs.1 lac as was the position, when moratorium was announced) will be covered now.  In these circumstances, merging the bank with State Co-operative Bank/other commercial Bank at an early date is an option that will be worth trying as the bank without doing any new business will be increasing its losses only; to that extent the interests of depositsors/insurer(DICGC) will be compromised



Comments

  1. CL business thoughtsMay 13, 2020 at 11:48 AM

    Quite a good build up of logic...an eye opener indeed

    ReplyDelete
  2. muraliMay 21, 2020 at 7:51 AM

    Clearly put. Probably RBI is making a case for coop banks to be brought under its full supervision

    ReplyDelete

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