Cap on South Indian Co-op Bank's activities

The Reserve Bank of India (RBI) on Monday put the Mumbai-based South Indian Co-operative Bank (SICB) under a directive restraining its activities.

The directions "" issued under Section 35A of the Banking Regulation Act from the close of business hours on August 9 "" capped the withdrawal of deposits at Rs 1,000 and restrained the bank from undertaking new businesses without RBI approval.

The co-operative bank had total deposits of Rs 251 crore and advances of Rs 141 crore on March 31 this year.

The decision to impose restrictions comes in the wake of a run on the 13-branch bank. Panick-stricken depositors rushed to the bank's branches to withdraw deposits, fearing that the bank would crumble because of its non-performing assets.

South Indian Co-operative Bank has been told not to grant or renew any loans and advances, make investments, borrow funds, accept fresh deposits and disburse any payments.

It has also been debarred from entering into any compromise or arrangement to sell, transfer or otherwise dispose of any of its properties or assets, without the prior approval in writing from the RBI.

The central bank has permitted depositors to withdraw up to Rs 1000. Also renewal of the existing term deposits on maturity in the same name and same capacity is permitted.

The Reserve Bank of India clarified that a relaxation of the directive will be considered on review.

The bank's net NPAs in March 2004 was 51.76 per cent and gross NPAs at 53.76 per cent. Its capital adequacy ratio was minus 17.52 per cent. It posted a net loss of Rs 35.84 crore in 2003-2004 against a profit of Rs 1 lakh in the previous year.

SICB chief executive officer Prafulla K Sukhtankar said the introduction of the 90-day accounting norms had led to an increase in the bank's NPAs.

The bank recovered bad loans worth Rs 6 crore in 2003-2004 and expected to recover Rs 12 crore of bad debts in the next fiscal year, he added. Sukhtankar said depositors need not panic as the bank had liquidity worth Rs 102 crore, of which Rs 24 crore is with the Maharashtra State Co-operative Bank in the form of fixed deposits.

SICB chairman Raghavan Sarathy said total cumulative withdrawals during the past three days were to the tune of Rs 6 crore.