The Reserve Bank of India (RBI) on Friday, February 20, imposed a Rs 1,000 withdrawal cap on Karnataka-based Deccan Urban Co-op Bank in the wake of its current liquidity position.
This means customers cannot withdraw more than Rs 1,000 from their savings account for a period of six months. The banking regulator also barred the bank from granting fresh loans or accepting deposits.
The said instructions shall remain in force for six months from the close of business on February 19, 2021, and are subject to review, according to a notice by the RBI. The bank has also been directed not to make any new investments or incur any liability without prior permission from the banking regulator.
RBI added that it issued the instructions to the CEO of the bank on Thursday, February 18. It has also directed the lender to refrain from disbursing any payment "whether in discharge of its liabilities or otherwise, or dispose of any of its assets except as notified in the RBI direction."
"Considering the bank's present liquidity position, a sum not exceeding Rs 1000 only of the total balance across all savings bank or current accounts or any other account of a depositor, may be allowed to be withdrawn," RBI said in a release on Friday.
Meanwhile, the regulator has allowed the bank's customers to set off loans against deposits during the 6-month restriction period, subject to conditions.
"However, 99.58 per cent of depositors are fully covered by the DICGC insurance scheme," said the regulator.
Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of RBI, provides insurance cover on bank deposits.
The RBI further said putting the bank under restrictions should not be construed as cancellation of its banking license.
The bank will continue to undertake banking business with restrictions till its financial position improves.
The Reserve Bank may consider modifications to the directions depending upon circumstances.
The directions are set to remain in force for six months from the close of business on February 19, 2021, and are subject to review, it added.