Exclusive: Abhyudaya Cooperative Bank likely to appeal against RBI decision, seek legal options

Sandeep Ghandat

Crisis-ridden Abhyudaya Cooperative Bank may appeal against the decision of the Reserve Bank of India (RBI) to supersede the bank’s Board, and is evaluating legal options, said Sandeep Ghandat in an exclusive interview with Moneycontrol on November 27.

"We are looking to go into the court with all legal options available to us. There is no other way for it; as it looks like RBI will not reverse its decision," said Ghandat, who was the chairman until the RBI’s decision to supersede the bank’s board.

On November 24, the RBI superseded the Mumbai-based Abhyudaya Cooperative Bank's Board citing material concerns related to poor corporate governance standards, the regulator said in a statement.

Ghandat further added that the bank might also approach the government, seeking intervention in the matter.

As per the website of Abhyudaya Bank, as of March 31, 2020, the bank has more than 17.30 lakh depositors, and total deposits of Rs 10,838 crore, and advances of Rs 6,654 crores. Also, the bank had a Capital Adequacy Ratio of 12.60 percent as of that date. Numbers post-2020 are not available in the public domain.

During the interview, Ghandat said the RBI could be working to merge the Abhyudaya Cooperative Bank with bigger banks or merge with a small finance bank (SFB).

"Our bank's due diligence has been running for the last two months, and they (the RBI) are working to give this bank to some big people,” said Ghandat to Moneycontrol.

Ghandat added that the RBI had been asking for data on the bank’s operation daily for the last two months concerning each branch.

“Generally, such kind of due diligence occurs when someone is in the mood to take over at the bank. But today I realise that if they want to give this bank to someone; or to (get) small finance banks (SFBs) or to merge into some bank; then I would say the bank asset is in a good position, "said Ghandat.

The RBI action is valid for a period of 12 months, the Central Bank said. Subsequently, the RBI has appointed Satya Prakash Pathak, former Chief General Manager of State Bank of India as administrator to manage the affairs of the bank during this period.

The RBI has clarified that no business restrictions have been placed on the bank and the bank can continue to carry on its normal banking activities under the guidance of the RBI-appointed administrator.

"My father was the founder of this Abhyudaya Cooperative Bank; we made this bank with full commitment,” he added.

He also said that the bank already has an RBI-appointed Additional Director, Rajendra Kumar, a DGM-level officer on its board for the last two years. Furthermore, Ghandat said, the RBI conducted monthly reviews of the performance and said the next meeting was scheduled to be held in the Mumbai suburbs on November 29.

Ghandat further added that the Mumbai-based bank has been able to shorten its bad loans from Rs 1,550 crore to below Rs 1,200 crore in the last two years.

"We have sold bad loans of Rs 1,000 crore to asset reconstruction companies and also received Rs 200 crore in the last 4-5 years. Also, we currently have 20 percent GNPA, and Net NPA is between 11-12 percent, we have improved the cost of funds, and operating profit from 2022," he added.

In recent years, the RBI has been cracking down on erring cooperative banks. In September 2019, the RBI had superseded the board of PMC Bank and placed it under various regulatory restrictions after detection of certain financial irregularities, hiding, and misreporting of loans given to real estate developer, HDIL.

During investigations, the RBI found that the bank had been allegedly running fraudulent transactions for several years to facilitate lending to HDIL through fictitious accounts and violating single-party lending rules. The RBI imposed restrictions on deposit withdrawals and superseded its board after the fraud was detected.

Later, PMC Bank was amalgamated into Unity Small Finance Bank which came into effect in January 2022.