RBI action on Gujarat's cooperative bank: Can you withdraw money? What depositors should know

The Reserve Bank of India (RBI) on Thursday imposed business restrictions on The Valsad Mahila Nagrik Sahakari Bank Ltd in Gujarat, barring it from issuing new loans, accepting fresh deposits or allowing withdrawals, citing supervisory concerns and liquidity stress.

The central bank said the restrictions in the form of 'Directions' will remain in force for six months from the close of business on Thursday.

What customers should know

Under the directions, the bank cannot, without prior RBI approval, grant or renew loans and advances, make investments, incur liabilities, including borrowing funds or accepting fresh deposits, or disburse any payments.

It is also barred from entering into compromises or arrangements and from selling, transferring or otherwise disposing of its properties or assets, except as permitted by the RBI.

Considering the bank’s present liquidity position, the RBI has directed that no withdrawals shall be allowed from savings, current or any other deposit accounts.

However, the bank has been permitted to set off loans against deposits, subject to conditions laid down in the RBI directions.

The bank has been allowed to incur expenditure on certain essential items such as salaries of employees, rent and electricity bills, as specified by the regulator.

The RBI said the restrictions were necessitated due to supervisory concerns arising from recent material developments in the bank.

“RBI has in the recent past engaged with the Board and Senior Management of the bank for improvement in its functioning,” the central bank said.

“However, lack of concrete efforts taken by the bank to address the supervisory concerns and to protect the interest of depositors of the bank, necessitated issuance of these Directions,” it added.

The eligible depositors would be entitled to receive deposit insurance claim amount of their deposits up to ₹5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC).

The central bank clarified that the issuance of directions should not be construed as cancellation of the bank’s licence.

The bank will continue banking operations subject to the restrictions until its financial position improves.

"The RBI continues to monitor the position of the bank and will take necessary actions including modifications of these Directions, as warranted, depending upon circumstances and in the interest of the depositors," RBI said.