RBI Supersedes Abhyudaya Co-op Bank Board Citing Poor Governance, Appoints Administrator To Oversee The Lender

Anonymous sources said that the majority of the concerns originated from the management of the bank under the chairmanship of Sandeep Ghandat.

The Reserve Bank of India superseded the board of the Abhyudaya Cooperative Bank on Friday regarding concerns arising from poor governance. The banking regulator also selected an administrator to oversee the affairs of the lender. 

The RBI noted, “The action is necessitated due to certain material concerns emanating from poor governance standards observed in the bank. No business restrictions have been placed by the RBI and the bank shall continue to carry on its normal banking activities,” reported PTI. The agency cited sources and stated that the central bank didn't place any restrictions or moratorium on deposit withdrawals owing to the comfort it gets on the bank’s finances. 

 The banking regulator appointed Satya Prakash Pathak, former chief general manager of the State Bank of India, for the administrator position. Further, the regulator chose a committee of advisors to assist Pathak, which included Venkatesh Hedge (former general manager, SBI); Mahendra Chhajed (Chartered Accountant), and Suhas Gokhale (former MD, COSMOS Co-operative Bank). 

The report cited sources and stated that the majority of the concerns originated from the management of the bank under the chairmanship of Sandeep Ghandat, wherein the lender was providing credit to the executive’s friends and relatives, with a ‘reluctance to recover, and needless hiring done to win over voters in the Parbhani district’. 

The agency reported that in a response to queries, Ghandat denied any wrongdoing and said he would urge all the defaulters to pay up now. 

The executive stated that the bank has a deposit base of Rs 10,800 crore and a loan book of Rs 6,400 crore. Based in Mumbai, the bank has its headquarters in Parel. The report quoted sources who revealed that the bank’s excess statutory liquidity ratio (SLR) would help make sure that the lender fulfills its obligations. They also noted that the banking regulator has agreed to allow access to its currency chest for the next three days to make sure that all the ATMs of the bank disburse cash as needed by the depositors. 

Further, sources maintained, “The problem is with the bank management, there is no problem with the bank per se.” They added that the lender was closely supervised for the last 18 months and ‘was not heeding to supervisory advice’. Ghandat further informed that the RBI appointed an additional director to the bank’s board, earlier in 2021, and was urging for a quicker reduction in the lender’s non-performing assets, which in turn led to these actions. 

Regarding the issue of asset quality, the bank leadership didnt take sufficient actions against the defaulters despite the ‘ability of the borrowers to pay’, the sources maintained. This lack of action was due to the relationships between the borrowers and the management. Further, they noted that the Ghandats family hired more people at the lender than needed, which led to a surge in the cost-to-income ratio. In response, Ghandat maintained that about 70 per cent of the defaulters were affected by the Covid pandemic, and noted that ‘he has hit the road to cajole them to pay up right after the RBI action earlier in the day’. 

According to the data available on the bank’s website, the lender’s net profit plunged to Rs 3.54 crore in FY21, against Rs 16.22 crore in the corresponding period a year earlier. Ghandat noted that the overall gross NPAs of the bank stood at nearly Rs 1,200 crore as of March 2023, which was reduced from the Rs 1,550 crore posted in the year-ago period. The executive also stated that the bank closed two of its branches and moved some to smaller locations to cut down on costs after pressure from the regulator. 

He further agreed that more than 80 per cent of the bank’s lending was to large borrowers, making a compromise on businesses, however, added that ‘this is in sync with its peers’. 

The former chairman noted that the issue for the lender ‘was the insistence to provide for asset sales done 5-6 years ago to asset reconstruction companies for which the regulator was pressing it to provide over Rs 800 crore over a five-year period’.