RBI Clamps Down As Pragati Co-op Goes Bust

Ahmedabad, September 27: | Updated: Sep 28 2002, 05:30am hrs
The continuing saga of co-operative banks going bust in Gujarat claimed another victim on Friday with the Ahmedabad-based Pragati Cooperative Bank withdrawing from clearing house operations.

Reacting swiftly, the Reserve Bank of India (RBI) has imposed Section 35 A of the Banking Regulation Act, prohibiting it from conducting any transactions over Rs 1,000 and also prohibiting it from accepting any fresh deposits.

Panic-stricken depositors of the bank, which has six to seven branches in all, could be seen queuing up outside all the branches in a desperate bid to withdraw their deposits.

The bank, though fairly old, is a relatively small bank with a total deposit base of Rs 23 crore. However, of late, the banks advances had burgeoned to Rs 33 crore with the result that it had been categorised as a weak bank by the RBI.

At present, there are over 70 banks on the weak list of the total 358 banks in the Gujarat co-operative sector.

Speaking to FE, senior RBI officials said the main reason for yet another co-operative bank moving out of clearing house activities indefinitely was on account of liquidity crisis.

In the past few days alone, following at least eight co-operative sector banks going bust in the state in quick succession, there has been a major run on all co-operative sector banks with depositors withdrawing deposits in huge amounts.

According to officials of the Pragati Co-operative Bank, in the past few days alone, around Rs three crore has been withdrawn from the bank forcing it to down its shutters.

In fact, according to a recent study, the decline in deposits in urban co-operative banks in the state has been around Rs 1400 crore between 2000-01 and 2001-02.

However, the RBI has urged depositors not to panic and start withdrawing their deposits prematurely as this would put undue pressure even on healthy co-operative banks and could result in their going bust as well.

On its part, the state government is yet to initiate any concrete action against any of the directors of defaulting banks though it is evident that poor judgement in disbursing loans and blatant favouritism is one of the major reasons for the rampant sickness in the state co-operative banking sector.