RBI imposes restrictions on Royale Bank

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

The Royale Bank was suspended from clearing house operations on October 6. Since then the bank has repaid around Rs 18 lakh to the fixed deposit holders over the last two days.

The RBI placed restrictions under Section 35 (A) on Wednesday. Normally, in such cases, RBI allows the bank to repay up to a certain amount to depositors and account holders.

But it was not known if Royale Bank has been permitted to make any payments. The total loan advances of the Royale Bank are in the region of Rs 11-12 crore. The bank is, however, permitted to initiate measures for recovering the loan amount.

"We are very disappointed with the RBI move as it has upset all calculations we had made to repay our customers. We will, however, try to recover as much money as we can in the coming days so that the RBI lifts the restrictions and allows us to repay our depositors," Jitu Modi, chairman, Royale Bank told Business Standard.

"Like in the case of other co-operative banks, a major portion of the total loans of Royale Bank has been taken by the directors and other people connected with it. Hence it would be very difficult to recover the loan amount," observed an industry source.

"RBI had placed similar restrictions on Diamond Jubilee Co-operative Bank, Suryapur Co-operative Bank, Vikas Co-operative Bank and The Century Co-operative Bank. None of these banks could recover any money after the restrictions," source said.