RBI issues notice to Vitrag Bank

The Reserve Bank of India (RBI) has issued a show-cause notice to the crisis-hit Shree Vitrag Co-operative Bank Ltd.

"The RBI has issued the show-cause notice to Vitrag Bank under Section 22 of the Banking Regulation Act on November 30. The bank has been asked to clarify within 30 days, as to why it's licence should not be cancelled," said Bharat Shah, director, Vitrag Bank.

"Since the state government has handed over the administration of Vitrag Bank to district registrar R R Waghasia, we are meeting him later today to discuss what reply should be filed to the show-cause notice," Shah added.

Shah said, "Vitrag Bank is trying to recover it's dues from the defaulters. If there is no recovery, it will not be possible for the bank to survive. This would leave only one option and that is to take the bank into liquidation." Shah, however, admitted that the recovery of Vitrag Bank's dues worth over Rs 12 crore would be difficult, as the defaulters are absconding.

The Surat Bankers' Clearing House had cancelled the membership of Vitrag Bank on October 15. Restrictions were clamped on it by the RBI on October 21.

Vitrag Bank was caught in a financial crisis, mainly because of the irregularities committed by the baank's chief executive officer Naresh Shroff, who gave temporary overdraft to the tune of 6.46 crore to some account holders.

This money was not repaid, resulting in liquidity crunch, and the subsequent crisis.

Criminal cases were registered by Vitrag Bank against more than 50 persons in connection to the fraud committed by them. The police have so far managed to nab only two accused, who are at present under judicial custody.

Atul Khatri, the prime accused in the case, is still at large.

The total deposits of Vitrag Bank are in the region of Rs 9.63 crore, while loan advances, including the temporary overdraft, stand at Rs 12 crore.

The total number of the bank's depositors is 4,332, of whom the deposits of 4,275 depositors are under Rs 1 lakh. These deposits are insured by the Deposit Insurance and Credit Guarantee Corporation.