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Monday April 10, 2005

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Text of TN Chief Minister's statement on Sivagangai Bank issue

 

 

The following is the text of the statement of the Chief Minister, Jayalalithaa, on the Sivagangai District Central Co-operative Bank issued on April 10, 2005.

 

"The media have reported that the Union Minister of Finance, Thiru. P. Chidambaram, has blamed the State Government for the ‘virtual collapse’ of the Sivagangai District Central Co-operative Bank, stating that the administrative control of the bank vests with the State Government and that despite many notices to improve its financial position, there has been no favourable response from the State Government or the Bank and that there have been serious irregularities in the working of the Bank. As usual, the Union Finance Minister has attempted to score a political point without checking the basic facts. It is most unfortunate that this has become a habit with him and yet he continues to head the Finance Ministry of the Union Government.

 

"It is important to note that the financial position of the Sivagangai District Central Co-operative Bank had deteriorated and its net worth dropped to less than Rs.1 lakh as on 31.3.1999. It thus did not comply with Section 11(1) of the Banking Regulation Act, 1949. The date is significant. The DMK Government was in office then. Thus the Sivagangai District Central Co-operative Bank collapsed due to the mismanagement of the then DMK Government. Since the Bank did not comply with Section 11(1) of the Banking Regulation Act, 1949, the Government of India first granted exemption to the Bank from this Section up to 31.3.2003 and later up to 31.3.2004.

 

"The Bank again applied for exemption up to 31.3.2007 and this was recommended and forwarded to NABARD by the State Government on 30.3.2004. Even when this application is still pending, the Reserve Bank of India has unilaterally issued this unwarranted and harsh direction on 5.4.2005, restraining the Bank from accepting or renewing deposits and refunding more than Rs.1000 to the deposit holders from their accounts. These directions have been issued ex-parte. No show cause notice to the Bank has been issued. The State Government has not even been informed of the action proposed. This is most unfortunate and smacks of heavy handed action when it is most unwarranted. The fact that it was done ignoring the requirements of farmers, artisans, and weavers shows a sinister motive on the part of Mr. P. Chidambaram. Before launching a broadside against my Government, why is it that Mr. P. Chidambaram did not check the basic fact that this Bank was ruined by the DMK Government while my Government had in fact done its utmost to rehabilitate the Bank? Is it part of his alliance dharma that he should attribute to my Government the serious irregularities of his alliance partner?

 

"The basic fact that emerges is that the Sivagangai District Central Co-operative Bank had already been ruined by the DMK Government even by 31.3.1999. No one can dispute this fact. Since 2001, Tamil Nadu was affected by successive droughts and everyone knows that farmers could not repay their loans taken from Co-operative Banks. Thus the entire Co-operative credit system has been under great stress. Instead of immediately putting together a rehabilitation package for the revival of the Co-operative credit system by providing adequate funds, Mr. P. Chidambaram merely announced a Task Force in his Budget for 2004-2005. I had even then pointed out this lapse. Now, in the Budget for 2005-2006 some mention of a rehabilitation package has been made with the indication that the States will be consulted. When this is the situation, how is it that Mr. P. Chidambaram and the Reserve Bank of India took this heavy handed action ignoring the plight of farmers, weavers. small artisans and the poor? This is indeed a reprehensible act which deserves to be condemned.

 

"What is worse is the fact that this heavy handed action comes at a time when the Sivagangai District Central Co-operative Bank has actually done a remarkable turnaround in 2004-2005 and has shown good results this year. During the current year, the Bank has lent Rs.11.70 crores as crop loans and exceeded its target of Rs.10 crores. It has rescheduled Rs.35 crores of crop loans and thereby reduced its Non Performing Assets (NPA). The State Government has sanctioned Rs.16.28 crores over the last 4 years to the Sivagangai District Central Cooperative Bank under various schemes for interest waiver, liquidity support etc. During 2004-2005, the State Government provided Rs.6.08 crores to enable the Bank to handle loans given prior to 1999 which had been converted once. The Bank has also received Rs.7.70 crores as liquidity support from the National Bank for Agriculture and Rural Development. In spite of these specific measures to rehabilitate the Bank, which have yielded good results, the RBI, based on NABARD’s report, has issued directions restraining the Bank from carrying on normal operations. This Bank has also always maintained the Cash Reserve Ratio and Statutory Liquidity Ratio as per the Banking Regulation Act. There are no irregularities except the issue relating to non-compliance of Section 11 (1) of the Act. There is absolutely no violation of the Act. The allegations of Mr. P. Chidambaram are thus totally baseless.

 

"It is therefore clear that the State Government has taken effective measures to set right the Bank left in ruins by the DMK Government. It has given considerable financial assistance over the last four years. The Bank has thus been enabled to reduce its ratio of gross Non Performing Assets to the loans outstanding from 35.8% as on 31.3.2004 to 22.35% on 31.3.2005. The Bank is likely to make a profit in 2004-2005. It will also have a positive net worth of Rs.2.35 crores as on 31.3.2005. It is thus clear that as on 31.3.2005, the Sivagangai District Central Co-operative Bank has successfully completed a turnaround and in fact now complies with the requirement under Section 11 (1) of the Banking Regulation Act. The action taken by the RBI on 5.4.2005 is totally unwarranted and should be withdrawn immediately. It is clear that had the RBI taken into account the developments over the last year and the position as on 31.3.2005, it should not have taken recourse to the action it has initiated. The best course for the Reserve Bank of India is to cancel the orders that it has issued.

 

"The State Government had sent a proposal on 30.3.2004 requesting continuance of exemption from complying with Section 11(1) of the Banking Regulation Act for a further period of three years up to 31.3.2007. Both the Reserve Bank of India and the Government of India ignored this request. Why did Mr. P. Chidambaram not provide the exemption requested, when he knew very well that the entire Co-operative Credit System in the country needed to be rehabilitated? Further, the fact is that as on 31.3.2005 with a net worth of Rs. 2.35 crores, the Sivagangai District Central Co-operative Bank does not any more need the exemption requested from the operation of Section 11(1) of the Banking Regulation Act, 1949. Yet with ‘perfect’ timing, possibly with a sinister motive, merely to satisfy a political whim, this heavy handed action has been taken, hurting farmers, artisans, weavers and others who have depended on this Bank. Instead of gloating over this vindictive action, hurting the people in his own constituency, Mr. P. Chidambaram would do well to ensure that these unnecessary orders are cancelled immediately. It is most unfortunate that he has descended to the petty level of hurting farmers, artisans, weavers and others merely to score some political brownie points which do not hold any water.

 

"The Government of Tamil Nadu has already taken far-reaching steps to completely overhaul and revamp the Co-operative credit structure together with adequate financial support. It has ensured that a record amount of Rs. 1,064 crores has been disbursed in 2004-2005 as crop loan. When this major rehabilitation programme is going on and the Co-operative credit structure is again finding its feet, the action taken at Mr. Chidambaram’s behest is totally unwarranted, vindictive and smacks of high handedness against the very people who elected him. It is shocking to see that Mr. P. Chidambaram will cut off his own nose in trying to score a political point against my Government. The people of his constituency who mandated him to office will never forgive him for this great betrayal at a crucial time when they are just coming out of a long spell of drought and looking forward to a summer crop based on good rains this season.

 

"My Government will always ensure that the interest of farmers, artisans, weavers and the poor is given the highest importance. Despite the evil machinations of Mr. P. Chidambaram, I will see to it that the interest of the farmers, artisans, weavers and others is safeguarded. I have written to the Governor, Reserve Bank of India, indicating clearly the financial position of the Sivagangai District Central Co-operative Bank as on 31.3.2005. I have demanded that the order may therefore be immediately rescinded.”

 

 



The Hindu