InvestorQ : Why has the RBI put severe restrictions on Deccan Cooperative Bank depositors?
Dawn Cherian made post

Why has the RBI put severe restrictions on Deccan Cooperative Bank depositors?

Mitali Bhutta answered.
1 year ago

The memories of PMC Bank and Yes Bank are not too distant, and we have one more case in the form of the Deccan Urban Cooperative Bank based out of Karnataka. Now, as a measure of caution, the RBI has barred the Karnataka-based Deccan Urban Co-operative Bank from granting any fresh loans or accepting any fresh deposits. In addition, account holders cannot withdraw more than Rs.1,000 from their savings account till the next six months.

In the meanwhile, the RBI has also instructed the bank not to make any fresh investments or incur any liability without the prior permission of the Reserve Bank of India. In short, it has virtually brought the operations of the bank to a halt. Deccan Urban Cooperative cannot also disburse any payment or discharge any of its liabilities nor dispose of any of its assets except as notified in RBI directions.

The restriction of withdrawal up to Rs.1,000 per person is considering the bank's present liquidity position. This will be a blanket withdrawal level permissible across all savings bank or current accounts or any other account of a particular depositor. However, customers have been given the leeway to set off their loans against deposits subject to conditions and availability of unencumbered balances in the bank account.

The good news is that most of the depositors are small depositors and hence nearly 99.58% of the depositors are fully covered by the deposit insurance scheme up to Rs.5 lakhs. It may be recollected that the Deposit Insurance and Credit Guarantee Corporation or DICGC provides insurance cover on bank deposits. As per the latest directives, such insurance amount can be availed immediately by the depositors.

RBI has clarified that these restrictions are not tantamount to cancellation of its banking licence. The bank will continue to undertake banking business within the restrictions imposed by the RBI till its financial position improves. RBI extant directions will remain in force for six months from February 19, 2021 and will be subject to periodic review.