Restrictions put on Nagpur Mahila Bank

The Reserve Bank of India (RBI) on Tuesday imposed severe restrictions on the troubled Nagpur Mahila Nagarik Sahakari Bank Ltd permitting withdrawals of only Rs 1,000 per person.

An RBI spokesman said that the apex bank is concerned over the liquidity position of the cooperative bank, therefore it has imposed the restriction.

It would technically have referred to the restrictions as a "moratorium", the RBI uses the term only when it acts against nationalised or commercial banks directly under its control.

In the case of a cooperative bank, the state cooperative department also has control over the institution.

The 27-year old bank is facing rough weather for the past few months after its dealings with the Hemani Group came to the fore. The bank had discounted cheques worth Rs 4.56 crore which were later found to be fake. The case has since been referred to the police which has initiated action against the Mumbai-based promoters of the Group.

The news of the Hemani Group defrauding the cooperative bank saw a run on the bank a month ago eroding its liquidity considerably.

Depositors in Vidarbha are wary of cooperative banks ever since the Nagpur District Central Cooperative Bank (NDCCB) and Home Trade Ltd's government securities scam occurred a couple of years back.

The scandal had impacted eight other cooperative banks in the region with the state cooperative department appointing administrators in two cases.

In its three-page directive issued under section 35(A) of the Banking Regulation Act, 1949, the RBI has asked the bank not to allow withdrawals over Rs 1,000 per person. The withdrawal will be allowed only once in the period till the directive is in force.

The bank can also not accept deposit except of loan overdues nor can it give fresh loans. Cheques drawn on Mahila Bank will not be cleared with effect from Tuesday. The bank cannot incur any expenditure without RBI's permission. It can, however, make salary payments and incur other administrative expenses.

The Mahila Bank has a total loan outstandings of Rs 78 crore, of which 45 per cent are bad loans. Madhu Sahu, general manager of the bank, said that though customers have been inconvenienced due to the moratorium, they should rest assured that their deposits are safe.

"We share their anxiety and hardship but the moratorium will help the bank concentrate its energies on recovering its dues," she said.

The bank had deposits of Rs 132 crore last financial year and advances of Rs 95 crore. It has over 70,000 deposit accounts, 75 per cent of which have an amount of less than Rs 1 lakh, Sahu said.

Such deposits are insured and Mahila Bank has been regularly paying the insurance premiums, she said.