Reserve Bank set to cancel KTDFC’s licence

Kochi: The Reserve Bank of India (RBI), through a special emissary, has informed the state government that it would revoke the non-banking licence of the Kerala Transport Development Finance Corporation (KTDFC).

This will have repercussions for Kerala Bank too as it has invested heavily with the corporation. The latest blow is the continuation of the problems that the cooperative banks have been facing, starting with the Karuvannur Bank in Thrissur.

The action by the Reserve Bank was triggered by the inability of the KTDFC to repay Rs 130 crore that it had accepted as fixed deposit from Sri Ramakrishna Mission based in Kolkata, even months after the expiry of its term. The inefficiency to of the state finance department to warrant the repayment also contributed to the punitive action.

The deposits accepted by the KTDFC are guaranteed by the state government. Under the terms of the agreement, the Kerala government is bound to repay if the corporation fails to return the deposit. With the corporation's inability to repay, the government guarantee too has lost its credibility.

Kerala Bank had granted an unsecured loan of Rs 356 crore to KTDFC based on the directive of former Finance Minister Thomas Isaac. Later, this became a non-performing asset. Now, the outstanding amount repayable has mounted to Rs 900 crore with interest.

The RBI had prohibited KTDFC from accepting deposits as its situation deteriorated. This also proved a major blow for the corporation.