RBI bans withdrawals from Shikshak Coop Bank

The Reserve Bank of India (RBI) has banned premature term deposit withdrawals from Shikshak Sahakari Bank which witnessed withdrawals worth 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 in a bank and protect depositors' interests.

The apex bank will revoke the restriction only once it feels that the cooperative bank is on a strong footing. Shikshak Bank is the second cooperative bank to be restricted by the RBI in the past fortnight.

Earlier, the RBI had stepped in when it found that Samata Sahakari Bank's financials were shaky. However, the restrictions on withdrawals were stricter on the bank. According to the moratorium, withdrawals were capped at Rs 1,000 only.

Around Rs 28 crore was withdrawn from Shikshak Bank on August 14 and the bank's credit-to-deposit ratio reached 72 per cent as against 63 per cent before the withdrawals started. A rumour that the RBI was contemplating restrictions on the bank too kicked off the withdrawal rush.

"After the RBI move, panic withdrawals have come down to a great extent," Anil Sole, vice-chairman, told reporters at a press conference. He hoped the depositors to return once the RBI lift the embargo.

He said the RBI acted on the bank's specific request as there was no other way to control the "mindless withdrawals".

"The bank has honoured all its commitments and paid every depositor during the past one week. However, there were apprehensions that its liquidity would get affected if withdrawals continued," said Sole.

Throughout the week the bank's cash reserve ratio (CRR) and statutory liquidity ratio (SLR) remained intact and it did not have to resort to borrowings for paying depositors, Sole said, adding this indicated that the bank had strong fundamentals.

Shikshak Bank 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.

The bank posted an operating profit of Rs 2.46 crore in FY06 as against Rs 15.49 crore in FY04 and Rs 4.46 crore in FY05. Accumulated losses, however, stood at Rs 33.58 crore last financial year.