Saturday, 6 August 2005

Charminar Bank Scam: Bank fails to collect recoveries even after 40 months of scam

Syed Akbar
Hyderabad, Aug 6: One hundred employees, Rs 10 lakh expenditure per month and not a single paise turnover for the last 40 months. This is the state of affairs in the scam-hit Charminar Bank which collapsed in February 2002.
The State government revived the Bank on March 3, 2003 but the ban imposed by the Reserve Bank of India on financial transactions had turned the revival package ineffective. Neither the State government nor the Charminar Bank had approached the RBI seeking lifting of the ban to enable the bank to do regular business.
The bank authorities spent Rs 4 crore on expenditure on various heads including salaries in the last 40 months without the bank having earned anything from fresh transactions.
The bank has so far recovered about Rs 120 crore from loan defaulters. Since its money is deposited in government securities, it cannot take up fresh lending and deposits or even loans against mortgage of gold.
Interestingly, Charminar Bank gets just 4.5 per cent interest on its investments made with the government/RBI while it pays 7.5 per cent to depositors.
"Charminar Bank is losing three per cent interest. A bank will run effectively only if the interest rate charged on lending is more than the interest rate given on deposits. The case with Charminar Bank is reverse. For every Rs 100 invested in government securities it is earning an interest of Rs 4.50 but for every Rs 100 it has borrowed from depositors it is paying Rs 7.50 as interest. The RBI has to set right this anomaly to make the bank come out of the red," says Charminar Bank NRI Depositors' Association convener MA Taher.
The bank authorities need to collect around Rs 450 crore from defaulters and of this only Rs 120 crore was recovered in the last four years. Even the modified one time settlement scheme could not help the bank as the scheme has been challenged in court.
Meanwhile, Charminar has made arrangements for disbursal of the second instalment to depositors up to Rs 5 lakh deposits. The cheques will be distributed later this month.

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