RBI bars Century Co-op Bank from clearing house

The Reserve Bank of India (RBI), on Saturday, placed restrictions under Section 35 (A) of the Banking Regulations Act, on Surat-based Century Co-operative Bank.

The bank was suspended from clearing house operations on September 1 as it failed to meet the clearing house requirements for the day. This spread panic among the depositors, who thronged the bank to withdraw deposits.

The co-operative bank has allowed depositors to withdraw their entire deposits from the savings and current account. Over Rs 2.50 crore were withdrawn by the depositors.

To regain entry into the clearing house, the Century Bank has been directed to improve its financial position, which could be possible only if it made recoveries from the loan accounts. The bank, however, could not recover any substantial amount, since its suspension.

Its position, in fact, weakened as it continued paying money to the depositors. In view of the critical position of the bank, the RBI on Saturday placed restrictions under Section 35 (A) of the Banking Regulations Act. This means that the bank is prohibited from making any transactions.

The Century Bank is now prohibited from paying any money to its depositors.

The only activity the bank can undertake is loan recovery. The bank has started issuing notices for recovery of loans.

Ramesh Rajput, manager, Century Bank, said, "The Reserve Bank of India has placed restrictions on us under BRA 35 (A). So we cannot repay any money to the depositors now. We have to recover money to improve our cash reserve ratio and statutory liquidity ratio."

"Our loan advances stand at Rs 14.72 crore. We have started issuing notices to people, who have taken loans from us and asked them to repay the amount within 15 days. We are hopeful of recovering bulk of the loan amount in the coming days, which would pave the way for us to restart clearing house operations," he said.

The bank would resort to taking legal action against the defaulters. "If the amount is not repaid, we will file civil suits and even criminal cases against the defaulters. We will attach properties of the defaulters to recover the bank's money," Rajput added.

According to banking sources though, it is a tough task for to recover money in the near future.

"The Century Bank has total loan advances of Rs 14.72 crore in 278 accounts. Of this amount, a major portion has been loaned out to 25-30 firms. Many of these firms belong to the bank's directors and hence it would be very difficult to recover the loan amount for the bank," an industry source said.

"It would be extremely difficult for Century Bank to recover the loan amount and restart clearing house operations.

"The Reserve Bank had placed similar restrictions on Diamond Jubilee Co-operative Bank, Suryapur Co-operative Bank and Vikas Co-operative Bank, but these could not recover any substantial amount. Licenses of all these banks are suspended now and it would not be surprising if Century Bank went the same way," said another industry source.