HC order scares City Co-op Bank depositors

Panicky depositors of the Surat-based City Co-operative Bank thronged its branches on Thursday to withdraw money after the Gujarat High Court on Wednesday superseded the bank's board and appointed district registrar R R Waghasia as the bank's administrator.

A large number of depositors were seen flocking the Tadwadi branch of the City Co-operative bank and many of them feared that if they did not withdraw their deposits from the bank now, they would not get more than Rs 1,000.

In fact, several customers were seen withdrawing the entire amount of deposits from their accounts. A Reserve Bank of India spokesperson in Mumbai said the bank is closely monitoring the developments in the co-operative bank and appropriate action will be taken soon.

Suryapur Co-operative Bank, which collapsed on August 30, 2002, had allegedly violated RBI norms and paid Rs 12 crore to City Co-operative Bank on the same day on which it went bust.

After details of this illegal transaction came to light, City Co-operative Bank allegedly made false entries and gave out bogus loans to claim that the money had been recovered from Suryapur Co-operative Bank. This was to show that the bank's money was safe, but this was far from reality.

Suryapur Agent Dainik Bachat Hitvardhak Samiti, which represents the bank's recurring deposit agents and small depositors, filed a public interest litigation in the Gujarat High Court in May, seeking an inquiry into this alleged transaction between the two banks.

The RBI, Gujarat chief registrar, City Co-operative Bank and Suryapur Co-operative Bank were made respondents in the petition. The petition came up for hearing on Wednesday and Justice Jayant Patel superseded the board of City Co-operative Bank and refrained it from taking any policy decision till further orders of the court.

He appointed district registrar Waghasia the administrator of City Co-operative Bank.

Justice Patel also directed Waghasia to conduct an inquiry into the alleged illegal transaction of Rs 12 crore between City Co-operative Bank and Suryapur Co-operative Bank and submit a report within 15 days.

Reports about the High Court order sparked off panic withdrawals from the Tadwadi (Rander) branch of City Co-operative Bank.

Waghasia said, "A number of co-operative banks have collapsed in Surat in the last couple of years. The withdrawals from City Co-operative Bank by depositors are purely because of this feeling of insecurity. I assure the depositors that City Co-operative Bank is stable and in sound condition."

"In view of the High Court directive, I have also started an inquiry into the alleged illegal transaction of Rs 12 crore between City Co-operative Bank and Suryapur Bank and will be submitting a report at the earliest," Waghasia said.

State co-operation minister Bhupendrasinh Chudasama was not available for comments.