Mumbai, Oct. 2: The trouble-torn Nedungadi Bank has been put under moratorium. ďOn an application of the RBI, the Centre today issued an order of moratorium in respect of the Nedungadi Bank Ltd,Ē the RBI said.
The moratorium began at the close of business today and will be valid till February 1 next year. In the interim period, the Reserve Bank of India will consider various options, including the amalgamation of Nedungadi Bank with any other bank, and finalise the plans in public interest and with a view to ensuring that public deposits are fully protected.
The RBI clarified that during the period of moratorium the bank will be permitted to make only those payments that have been specified in the order of moratorium. The depositors of the bank will be permitted to withdraw up to Rs 5,000 from their savings account or current account or any other deposit account.
The Reserve Bank, which has been grappling to tackle the problems faced by Nedungadi Bank, had earlier decided to free the bank from the grip of a Rajendra Banthia, a leading stockbroker, who controls nearly 40 per cent of its equity by asking him to step down from the board of directors.
Banthia was an associate of late Harshad Mehta and was close to late M.G. Damani, former president of the Bombay Stock Exchange. He emerged relatively unscathed in the stock market scam and went on to become a director, then treasurer and later vice-president of the Bombay Stock Exchange.
The RBI action followed the discovery that three broking firms had huge transactions with Nedungadi Bank between September 1999 and March 2000.
These brokers were Harvest Deal Securities, Shrikant G Mantri and First Custodian Fund (India) Ltd. Banthia, a director of the bank, controlled all the three broking firms.
Nedungadi is a conservative, Kozhikode-based bank that attracted the attention of late B. Ratnakar, former chairman of Canara Bank, and promoter-chairman of Fairgrowth Financial Services Ltd. In 1991, Ratnakar had secured control of Nedungadi Bank through a disguised takeover. RBI rules did not permit any individual to control more than 1 per cent of the voting stock, so Ratnakarís holding was distributed among several of his supporters and brokers.
When Ratnakar passed away in 1991, a big chunk of Nedungadiís equity partly remained with his buddy brokers and his family. Over the next few years, Banthia slowly acquired Nedungadi shares held by Ratnakarís friends and family. Part of the plans to broadbase the bank was to make it a clearing bank of the BSE.
The RBI has permitted authorised banks to enter into forward contracts for gold with their constituents, including exporters of gold products and trading houses. The forward contracts could be in respect of the underlying sale or purchase and loan transactions in gold with the constituents.
The tenure of such contracts should not exceed six months. Banks should put in place appropriate risk management mechanism for the purpose, like hedging their position either with other authorised banks or through exchange traded and over-the-counter hedging products available overseas, it said.