Abhyudaya Cooperative Bank's Wilful Defaults Surged Threefold In Just A Year
Abhyudaya Cooperative Bank, under RBI's board supersession, faced a drastic surge in wilful defaults, amounting to Rs 416 crore as per TransUnion Cibil data. These defaults, involving accounts with Rs 25 lakh or more, triggered legal actions due to borrowers failing repayment despite their financial capacity.
In October 2022, the Mumbai-based bank reported Rs 132 crore in wilful defaults across nine entities. Shockingly, the count of wilful defaulting companies skyrocketed to 24 within a year. This rise in defaults added pressure to the bank's challenges, especially considering its declining capital adequacy ratio, dropping from 12.6 per cent in FY20 to 9.02 per cent in FY22, as per RBI data.
Of these defaulters, 23 hailed from Maharashtra, with one from Gujarat. Notable defaulting entities include J Square Steels (Rs 88 crore), Saka Embroidery (Rs 52 crore), Swastish Enterprises, Satish Krishnakant Mohole-SKM Food (Rs 47 crore each) and Nirman Gold Alloys (Rs 40 crore).
Abhyudaya Cooperative Bank not only surpasses other cooperative banks in default numbers but also rivals or even exceeds some commercial banks in default amounts, like Yes Bank with Rs 408 crore and HDFC Bank with Rs 512 crore, despite the latter's significantly larger asset base.
Despite an email query to the RBI spokesperson remaining unanswered and no response from Suhas Gokhale, a member of the bank's advisory panel, experts emphasise the limited regulatory power the RBI holds over urban cooperative banks. They highlight the need for a more stringent mechanism for wilful defaulters, applicable to UCBs, according to Shiju P.V., a senior partner at IndiaLaw LLP.
The RBI's recent board supersession of Abhyudaya Cooperative Bank for a year, appointing Satya Prakash Pathak as administrator, stemmed from governance concerns. This action followed a previous penalty of ₹58 lakh in May 2022 due to delayed fraud reporting and misclassification of loans.
The government's amendments to the Banking Regulation Act in 2020 bestowed supervisory powers upon the RBI for cooperative banks post the Punjab and Maharashtra Cooperative Bank crisis. RBI deputy governor Rajeshwar Rao highlighted their close monitoring of various bank parameters, including governance, risk management, and compliance, stressing a holistic approach toward regulated entities' functioning.
As of March 2021, the bank held deposits of Rs 10,952 crore and loans/advances of Rs 6,711 crore, reflecting a stable financial position amidst these regulatory challenges.
