Reserve Bank of India (RBI)
Reserve Bank of India (RBI)
Photo Credit: PTI

Karnataka-based Deccan Urban Co-operative Bank has been put under restriction by the banking regulator, Reserve Bank of India. It has imposed a Rs 1,000 withdrawal limit on the customers due to poor financial health of the bank.

The regulator stated the bank cannot write grant or renew any loans and advances, make any investment, incur any liability including borrowal of funds and acceptance of fresh deposits, disburse or agree to disburse any payment whether in discharge of its liabilities and obligations or otherwise, enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets.

The bank cannot undertake any fresh business at least for a period of six months from the close of business on February 19, 2021 and are subject to review, stated the regulator. "The Reserve Bank may consider modifications of these Directions depending upon circumstances."

The regulator said these restrictions cannot be considered as cancellation of banking license by RBI.

However, the UCB is allowed to set off loans against deposits, subject to limitations.

These restrictions on urban cooperative bank (UCB) is under Section 35 A of the Banking Regulation Act, 1949.

"Considering the bank's present liquidity position, a sum not exceeding Rs 1,000 (Rs One thousand only) of the total balance across all savings bank or current accounts or any other account of a depositor, may be allowed to be withdrawn, but are allowed to set off loans against deposits subject to the conditions stated in the above RBI directions," the RBI said.

In addition, around 99.58 percent of the depositors are fully covered by the DICGC insurance scheme, the regulator said.

This is the first bank this year to be put under the radar by the regulator. In the past, the RBI cancelled permits of three co-operative banks and imposed restrictions on more than 11 other commercial banks.

Punjab and Maharashtra Cooperative Bank (PMC Bank) is one of the most-talked cases among the UCBs which is under various restrictions.

The commercial banks with deteriorating financial position are brought under prompt corrective action (PCA) framework. In 2020, RBI had rationalised its Supervisory Action Framework (SAF) to initiate PCA for urban cooperative banks (UCBs) facing financial stress too.

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