Another co-op crash: Vitrag Bank out of clearing house

Second bank Surat to be barred from clearing house operations

There seems to be no ending to the co-operative sector bust. Latest addition to it s the Surat-based The Vitrag Co-operative Bank Ltd.

On Friday, the Surat Bankers' Clearing House (SBCH) revoked the membership of Vitrag Bank for failing to meet the clearing requirement for the day.

Pankaj Desai, the acting president of Surat Bankers' Clearing House told Business Standard: "We have revoked the membership of Vitrag Co-operative Bank on Friday, as the bank failed to meet its clearing liability for the day. The bank had to deposit Rs 3.50 lakh with us, but failed to do so."

"We have informed the Vitrag Bank, that it ceases to be our member. We have taken this decision in pursuant to Regulation 13 (D) of Uniform Regulations and Rules for Bankers Clearing Houses (UR & RBCH). The only way Vitrag Bank can resume clearing operations is by becoming a sub-member through some other bank," Desai said.

Naresh Shroff, CEO, Vitrag Bank, said, "We were facing a liquidity crunch for some days. We could not deposit cash Rs 3.50 lakh with SBCH on time, which has led to revoking of our membership."

Shroff blamed the current crisis to the panic withdrawals by depositors. "The crisis we are facing is mainly due to the panic withdrawals by the depositors. Added to it was the problem we were facing in the cheque discounting business. This too created a liquidity crunch," Shroff added.

Vasant Nanavati, chairman, Vitrag Co-operative Bank, could not be reached for comments despite several attempts.

The Vitrag Co-operative Bank is a single branch bank that was founded in December 2000. As on O October 7, 2004, the bank's total deposits stood at Rs 9.63 crore, while its loan advances were Rs 6.27 crore.

Of the 4,332 depositors, 4,275 had desposits under Rs 1 lakh. Shroff said that these desposits are insured by the Deposit Credit Insurance Guarantee Corporation (DCIGC).

According to industry sources, the main reason for the liquidity crisis in the Virag Bank was the temporary over draft of Rs 6.46 crore given to some of its customers. Shroff could not provide any satisfactory answer about the bank's advances.

Vitrag is the second bank in Surat, which has been revoked by SBCH. The clearing house had revoked the membership of the Royale Co-operative Bank on October 6.