RBI stops deposit withdrawals from Shikshak Bk

Reserve of India (RBI) has stopped premature term deposit withdrawals from Shikshak Sahakari Bank, the second biggest co-operative bank in the region, which saw panic run withdrawals of Rs 82 crore in the past week.

The order covers all types of deposits except savings and current accounts.

Issued under Section 36(1) of the Banking Regulation Act, the order is a pre-emptive measure to curb losses and protect depositors' interests. The restriction will be removed at RBI's discretion after it feels that the co-operative bank is on a sounder footing.

This is the second co-operative bank on which the RBI imposed restrictions in the past fortnight. The first was the Samata Sahakari Bank where the apex bank stepped in when it found the co-operative bank's financials shaky. In Samata's case, which also triggered the run on Shikshak Bank, RBI imposed stricter limitation on withdrawals. The moratorium restricts any type of withdrawal to only Rs 1,000.

Around Rs 28 crore were withdrawn from Shikshak Sahakari on August 14. A rumour that RBI was contempating a restriction against the otherwise-sound Shikshak Bank after it cut the wings of Samata Bank started the panic run.

"The RBI move has helped and panic withdrawals have receded to a great extent," Shikshak's vice-chairman Anil Sole told newsmen. He hoped that depositors would come back to Shikshak after they found that it was not facing any kind of trouble and that the RBI would then lift the embargo.

Sole claimed that RBI acted on Shikshak Sahakari's specific request as there was no other way to control the "mindless withdrawals". Explaining the difference between the limitations imposed on Samata Bank and Shikshak Bank, the latter's technical director, Sanjay Narke, said the order on Samata Bank places an embargo on a host of transactions including accepting fresh deposits. "In our case, only term deposits are covered. Moreover, fresh deposits to the tune of over Rs 1 crore were also received on Wednesday-Thursday," he said.

"The bank has continued to honour all its commitments and paid every depositor during the past one week. However, there were apprehensions that its liquidity would be eroded if withdrawals continued any longer," said Sole adding that no bank could withstand such withdrawal pressures.

Shikshak Sahakari has a deposit base of Rs 626.63 crore and advances of Rs 408.55 crore, according to its balance sheet for the financial year 2005-06. It posted an operating profit of Rs 2.46 crore in FY06, down from Rs 4.46 crore in FY05. Accumulated losses, however, stood at Rs 33.58 crore last fiscal.