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rbi: RBI imposes curbs on National Coop Bank, the Bengaluru bank founded by a Gandhian

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The Reserve Bank of India (RBI) on Tuesday announced a series of restrictions on one of Bengaluru’s oldest institutions, The National Cooperative Bank, in response to its deteriorating financial position, allowing it to disburse only up to Rs 50,000 to depositors in all types of account.

The RBI issued the directions to the 48-year old bank using its powers under the Banking Regulation Act, 1949.

The banking regulator’s action bars the cooperative bank from renewing loans and advances, making any investments, incurring any liability including borrowal of funds and acceptance of fresh deposits, disbursing any payment, entering into deals to sell, transfer or dispose of any of its properties or assets.

The RBI press statement said that the eligible depositors were entitled to receive a deposit insurance claim of up to Rs 5 lakh from the Deposit Insurance and Credit Guarantee Corporation.

The statement, however, clarified that its directions did not mean cancellation of the banking license. The bank will continue to undertake banking business with restrictions till its financial position improves. The sector regulator may modify its directors depending on circumstances.

The RBI said its directions would be in force for a six-month period from the close of business on July 24.
The cooperative bank has a dozen branches in Bengaluru and one in Mysuru.

According to National Cooperative Bank’s annual report for the financial year ended March 31, 2021 — the most recent one available on its website — the bank had a total business of Rs 2807 crore with a net non performing asset (NPA) of 27.81%. The bank had a working capital of Rs 1982 crore and a deposit of Rs 1679 crore.

The bank was founded in 1975 by the late Gandhian TR Shamanna, a Bengaluru South MP in the early 1980s, well-known for his simple lifestyle and deep involvement with public causes.

The National Cooperative Bank is the second cooperative bank to fall from grace after Sri Guru Raghavendra Sahakara Bank came under the RBI’s lens for its dubious lending practices. In January 2020, the banking regulator had imposed a set of restrictions on the bank after its inspection team found slippages in its loan book, and increase in non-performing assets (NPAs).

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