INDIA: Thousands of Seniors Have Deposits in This "Frozen" Bank

Reserve Bank of India Freezes Operations of South Indian Co-op Bank MUMBAI (The Hindu), August 9, 2004: THE Reserve Bank of India on Monday froze all operations of The South Indian Co-operative Bank Ltd. It allowed depositors to withdraw a sum not exceeding Rs 1,000 from the Mumbai-based urban co-operative bank. The bank is not allowed to advance any fresh loans. In a statement issued on August 9, the RBI said as at the close of business on August 9, 2004, the bank may not make any investment, incur 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, enter into any compromise or arrangement and sell transfer or otherwise dispose of any of its properties or assets, without written consent from the central bank. "Withdrawal is allowed for depositors up to a sum not exceeding Rs 1,000 of the total balance in every saving bank or any other deposit account by whatever name called," RBI said. Renewal of the existing term deposits on maturity in the same name and same capacity is permitted, said the release. Relaxation of the directive will be considered on review. As news of the bank's ailing financial status spread, anxious customers thronged its branches and withdrew deposits en masse. The alarm bells were sounded when the bank released its balance sheet a few days ago, which showed staggering losses to the extent of Rs 35.84 crore in the financial year ended March 31, 2004, against a profit of Rs 1.02 lakh in the previous year. During this period, the gross and net NPAs of the bank zoomed to 53.76 per cent and 51.70 per cent respectively, against the gross and net NPAs of 9.81 per cent and 4.33 per cent in the previous period. The bank's networth was eroded by Rs 1,018.34 lakh even as its capital adequacy ratio slipped to - 17.52 per cent. RBI ranked the bank at `D' for its audit classification, which is reflective of the bank's poor financial health. Mr Raghavan Sarathy, Chairman, The South-Indian Co-operative Bank, blamed the "reckless reports" in the media for the mass panic of the depositors. "The bank's liquidity position is very comfortable and we will be able to meet the needs of the depositors," he said. "Our profits have been hit because we have had to increase our provisioning substantially as per the latest RBI norms. Moving to the 90-day norm for classifying NPAs has also hit profits," Mr Sarathy said. He admitted that some advances of the bank had gone bad and that recoveries had not been satisfactory. Copyright. The Hindu Independent reports say this Bank has thousands of elderly depositors who have been attracted by the interest rates offered. Many have put their life's savings in accounts with this bank.