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In a significant move, the Reserve Bank of India (RBI) has placed several constraints on the Mumbai-based Sarvodaya Co-operative Bank. Starting today (April 16), customers of the bank are now limited to a maximum withdrawal of Rs 15,000 from their accounts. This decision comes in response to the bank's deteriorating financial health, the RBI said in a press release.
Impact on customers
Customers will feel the immediate effect of these restrictions through the imposed withdrawal limit. For those requiring more than Rs 15,000 for their daily needs or unforeseen expenses, this cap may pose significant challenges.
Deposit insurance assurance
For depositors worried about their funds, the RBI has confirmed that they are eligible to claim an insurance amount on deposits up to a limit of Rs 5 lakh. This insurance is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), offering some relief amid the restrictions.
Operational restrictions
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Under the new directives, which fall under Section 35A of the Banking Regulation Act, 1949, the Sarvodaya Co-operative Bank faces strict limitations on its banking activities. It is no longer permitted to issue or renew loans and advances, make new investments, or incur additional liabilities without prior approval from the RBI. The bank is also restricted from making any payments to discharge its liabilities, unless explicitly approved.
Bank's license and future operations
Do note that these measures do not indicate a revocation of the bank's license. The RBI has clarified that while the bank will continue to operate, it will do so under these constraints until there is an improvement in its financial condition. The imposed restrictions are set to last for six months and will be reviewed periodically.
Curbs on Shirpur Coop Bank
Last week, RBI imposed several restrictions on Maharashtra-based Shirpur Merchants' Co-operative Bank, including withdrawal of funds by customers, in the wake of the lender's deteriorating financial position.
What are your rights if a bank fails?
Deposit insurance: DICGC Act ensures that each depositor is insured up to Rs 5 lakh, covering both the principal and interest amounts across all account types within the same bank.
Eligible depositors can claim their insurance up to Rs 5 lakh by submitting their willingness to the DICGC, as per the regulations.
Deposits up to Rs 5 lakh are refunded within 90 days from the start of the moratorium. This period is split into two phases: the first 45 days for the bank to gather and submit claim details to the DICGC, followed by another 45 days for DICGC to process and pay the claims.
"DICGC aims to settle the claims of insured depositors promptly, typically within two to three months from the date of receipt of the claim list from the liquidator of the failed bank," Adhil Shetty, CEO of Bankbazaar.com told Business Standard.
"In the event of a bank's liquidation, the claims of insured depositors are given high priority. Insured depositors are compensated before other creditors in the liquidation process," he explains.
