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RBI places Nedungadi Bank under moratorium

The Reserve Bank of India placed publicly quoted Nedungadi Bank under moratorium after it discovered its owners had allegedly violated central bank norms while lending to stock brokers.

"The functioning of the bank was not in the public interest. The owners, who are also stock brokers had misused banks' funds and invested money in violation of RBI rules," said a senior central bank official who declined to be named.

The central bank does not permit Indian banks to invest more than five per cent of their total deposits in shares.

According to the Bombay Stock Exchange Website (www.bseindia.com), the owners have about a 31.24 per cent stake in the south-India based bank while retail investors have a stake of 55.71 per cent. The remainder is held by private corporate bodies and institutional investors.

The RBI said that under the moratorium, the depositors of the bank, which posted a loss of Rs 2.63 crore (Rs 26.3 million) in the second quarter ended September 30, will be permitted to withdraw only Rs 5000.

The moratorium will be effective from close of business on November 2 and will be on till February 1, 2003.

"During this period, the RBI will consider the various options, including amalgamation of the Nedungadi Bank with any other bank and finalise plans in public interest and with a view that the public deposits are fully protected," a statement from the central bank said.

Shares of the bank ended 4.26 per cent up at Rs 22 while the benchmark Bombay Stock Exchange ended almost flat at 2,950.58 points.

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