Customers of Shirpur Merchants’ Co-operative Bank cannot withdraw money from their bank accounts as the Reserve Bank of India (RBI) has placed the lender under certain restrictions. The RBI in its directions has categorically mentioned that the lender, which is facing liquidity crunch, can neither accept fresh deposits nor disburse money to customers.

Shirpur Merchants’ Co-operative Bank “shall not, without prior approval of RBI in writing grant or renew any loans and advances, make any investment, incur any liability including borrowal of funds and acceptance of fresh deposits, disburse or agree to disburse any payment whether in discharge of its liabilities and obligations or otherwise….”, the Reserve Bank said in a release last week.

“These directions shall remain in force for a period of six months from the close of business on April 8, 2024 and are subject to review,” the RBI said.

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What does this moratorium mean for Shirpur Merchants’ Co-operative Bank?

The issue of the above directions by the RBI should not per se be construed as cancellation of banking license. The bank will continue to undertake banking business with restrictions till its financial position improves. The Reserve Bank may consider modifications of these directions depending upon circumstances.

This is not the first case of the RBI putting such restrictions on a cooperative bank as the apex bank in 2021 imposed a moratorium on scam-hit Punjab and Maharashtra Bank (PMC) for an initial period of six months and later extended the ban. In January 2022, the Centre approved the merger of PMC Bank into Unity Small Finance Bank.

Impact of RBI directions on Shirpur Merchants’ Co-operative Bank customers

Considering the bank’s present liquidity position, no amount from the total balance across all savings bank or current accounts or any other account of a depositor, may be allowed to be withdrawn, but are allowed to set off loans against deposits subject to the conditions stated in the above RBI directions, the apex bank’s release said.

What will depositors receive?

The eligible depositors would be entitled to receive deposit insurance claim amount of his/her deposits up to a monetary ceiling of Rs 5,00,000 in the same capacity and in the same right, from the Deposit Insurance and Credit Guarantee Corporation, under the provisions of Section 18A of the DICGC Act (Amendment) 2021, based on submission of willingness by the concerned depositors.

What is DICGC?

The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly-owned subsidiary of the RBI. It was established for the purpose of insurance of deposits and guaranteeing of credit facilities and is governed by the provisions of ‘The Deposit Insurance and Credit Guarantee Corporation Act, 1961’ (DICGC Act) and ‘The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961’ framed by the Reserve Bank of India. Deposit insurance remains the principal function of the Corporation.

What does the DICGC insure?

The DICGC insures all deposits with banks such as savings, fixed, current, recurring, etc. but does not include deposits received from a foreign Government, the Central Government, a State Government, another bank, any deposit received outside India or any amount specifically exempted by DICGC with the previous approval of Reserve Bank of India.

Are deposits in different banks separately insured?

Yes. If you have deposits with more than one bank, deposit insurance coverage limit is applied separately to the deposits in each bank.

What is the maximum deposit amount insured by the DICGC?

Presently, each depositor in a bank is insured upto a maximum of Rs 5,00,000 for both principal and interest amount held by him/her in the “same right and same capacity” as on the date of liquidation/cancellation of a bank’s licence or
the date on which the scheme of amalgamation/merger/reconstruction comes into force or the date of any direction is issued or any prohibition or order or scheme is made under any of the provisions of the Banking Regulation Act, 1949 and such direction, prohibition, order of scheme provides for restrictions on depositors of such bank.

The deposits kept in different branches of a bank are aggregated for the purpose of insurance cover and a maximum amount of upto Rs 5,00,000 is paid.

Which banks are insured by the DICGC?

All commercial banks (including branches of foreign banks functioning in India, local area banks and regional rural banks) and all co-operative banks are insured by the DICGC. Primary co-operative societies are not insured by DICGC. The deposit insurance scheme is mandatory, and no bank can withdraw from it.