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Vasavi Bank repays Rs 790 million deposits

Syed Amin Jafri in Hyderabad

The Reserve Bank of India and the Registrar of Co-operative Societies (AP) have come to the rescue of co-operative urban banks, which are under tremendous pressure in Hyderabad in the wake of the collapse of Krushi Bank, by asking the depositors not to get panicky.

The RBI also told these banks not to resort to repayment of prematured fixed deposits if they cannot meet the demand.

The 'reassuring' statements from the RBI and RCS have come after Vasavi Co-operative Urban Bank witnessed a run on its deposits since August 26. Over the last four days, thousands of Vasavi Bank depositors withdrew their money.

The bank disbursed Rs 520 million in cash and Rs 270 million in demand drafts (aggregating to Rs 790 million) to depositors who reclaimed their deposits prematurely.

The Vasavi Bank, started two decades ago, has total deposits of Rs three billion. But scared depositors lined up before the bank's 18 branches, following media reports that it was classified as a 'weak bank' by the RBI due to its high NPA.

The bank management organised a meeting with depositors on Wednesday and assured them that their money was safe and they could withdraw the amounts if they so desired.

Responding to a plea from the AP Urban and Town Bank Co-operative Banks Association, in a statement, RBI executive director P B Mathur, issued the advisory stating that "financial prudence demands that banks do not take up repayment of fixed deposits which are not due for repayment unless the banks are in a position to do so after ensuring discharge of all their current obligations. "

The association has circulated the RBI advisory to all the member-banks to prevail upon the depositors not to insist on premature withdrawal of their deposits.

Association president M Anjaneyulu says that there is a let-up in the run on the deposits of the co-operative urban banks since Wednesday and the situation would improve in the next few days.

In another development, the Registrar of Co-operative Societies has also assured the people that they need not have doubts about the security of their deposits in the co-operative urban banks.

Advising the public not to be misled by rumours and incorrect statements about the co-operative banks, the RCS said that the deposits up to Rs 100,000 in the co-operative urban banks were insured with Deposit Insurance and Credit Guarantee Corporation of India.

The RCS explained that the co-operative urban banks conduct banking functions just like the commercial banks after license is issued by the RBI.

The RCS clarified that a 'weak bank' did not mean that it was under liquidation and not functioning. "A weak bank may mean that a particular bank does not have an adequate capital base and its recovery position needs to be strengthened. It, however, does not mean that the bank will not be able to honour its financial commitment," the RCS added.

Meanwhile, the Greater Hyderabad Co-operative Urban Banks Forum, representing 69 banks in and around the state capital, has decided to adopt a code of conduct for its members which account for deposits totalling Rs 24 billion.

The do's and don'ts to be laid down in the code would be on the lines of 22 parameters prescribed by the RBI for all the co-operative banks.

The forum also urged the RBI to raise the insurance slab to Rs 200,000 for DICGCI coverage to protect the interests of investors. At present, deposits of co-operative banks under Rs 100,000 are covered under DICGCI scheme.

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