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Co-op banks to mull bailout strategy

Over 150 co-operative banks, hit by a major payment crisis in India's co-operative banking sector, will consider ways to resurrect troubled Madhavpura Mercantile Co-operative Bank at a meeting.

The Reserve Bank of India has placed Madhavpura under an administrator and frozen withdrawals of over Rs 1,000.

More than 160 urban co-operative banks had deposits of nearly Rs 6 billion with the Madhavpura Bank which suffered a big erosion of its reserves due to excessive exposure to the country's shaky stock market.

"The meeting on Saturday (in Ahmedabad) will be attended by representatives of over 160 banks which deposited money with Madhavpura bank," said N R Patel, vice-president of Gujarat Urban Co-operative Banks Federation, said.

Patel said the meeting was convened to work out a "workable suggestion" to prevent Madhavpura Bank from being liquidated.

The Central Bureau of Investigation is investigating allegations of fraud by the bank after a complaint by the state-run Bank of India.

Patel said the meeting would consider asking the federal and state governments to inject about two billion rupees to enable Madhavpura Bank tide over the current crisis.

"The government will have to play an active role in ensuring people don't lose faith in the co-operative banking system," he said.

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