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RBI declares another Gujarat co-op bank weak

Suresh R Menon

The Reserve Bank of India's Ahmedabad office on Tuesday declared the Mehsana-headquartered Visnagar Nagrik Sahakari Bank Ltd weak, news of which led to some apprehension among depositors who gathered at some of the branches.

There has been a self-imposed ban on premature withdrawal of deposits, followed by all the Gujarat-based co-operative banks after the Madhavpura Bank crisis.

Visnagar Bank is one of the seven scheduled co-operative banks of Gujarat with 15 branches all over the state, four of which are in Ahmedabad.

Considered one of the premier co-operative banks in Gujarat, VNSB has a total deposit-base of Rs 6.33 billion. The bank is promoted by the grain merchants of Visnagar town of Mehsana district.

Sources, speaking on condition of anonymity, alleged that the trouble started with the state co-operative department leaking to the Press on Monday an RBI letter addressed to VNSB, declaring it a weak bank.

The central bank's letter states that following a statutory inspection of VNSB, it had observed that erosion in net funds worked out to a whopping 85.8 per cent, as on March 31, 2000.

"Accordingly, your bank has been classified as a weak bank requiring rehabilitation and is included in the list of weak banks under rehabilitation," the letter reads. RBI has asked VNSB "not to declare or disburse dividend without our prior permission from the year 2000-01 and onwards."

It has also advised VNSB not to acquire or dispose any immovable properties nor to shift or change existing places of business without the central bank's prior approval.

It has also advised the bank management "to make efforts towards deposit mobilisation, judicial deployment of funds with a view to improving profitability and management competence, building up of a strong capital base and strengthening general internal control system, loan policy and procedures and recovery of dues."

In the last paragraph, RBI said, "drawing up of the rehabilitation programme and formation of the review committee will be advised in due course."

Speaking to Business Standard, RBI sources said, "This is just a routine letter written to weak banks with a view to inducing the necessary discipline. It does not in any way reflect the ability or inability of such banks to repay deposits."

As such there is no cause for panic withdrawals which may prove to be counter-productive and not in the depositors' interest, they added.

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