The Reserve Bank of India (RBI) on Friday imposed a ₹1,000 withdrawal cap on the customers of Karnataka-based Deccan Urban Co-operative Bank Ltd. “Considering the bank’s present liquidity position, a sum not exceeding ₹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the total balance across all savings bank or current accounts or any other account of a depositor, may be allowed to be withdrawn,” RBI said in a release on Friday.
The banking regulator also barred the lender from undertaking any fresh business including granting new loans or accepting deposits.
The restrictions will be effective for the next six months from ‘the close of business on 19 February, 2021’, the central bank said.
Nearly 99.58% of the depositors are fully covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance scheme, said the regulator assuring the customers. DICGC insurance is a wholly-owned subsidiary of the Reserve Bank of India that provides insurance cover for bank deposits.
The central government earlier raised the deposit insurance cover to ₹5 lakh. In Budget 2021, finance minister Nirmala Sitharaman proposed to amend the Deposit Insurance and Credit Guarantee Corporation Act, 1961, (DICGC Act), to allow the customers to get funds if a bank is unable to fulfil its obligations.
“I shall be moving amendments to the DICGC Act, 1961 in this Session itself to streamline the provisions, so that if a bank is temporarily unable to fulfil its obligations, the depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover,” Sitharaman said in her Budget speech 2021.
The RBI further added putting the bank under restrictions should not be construed as cancellation of its banking license.
The bank has also been asked not to make fresh investments or incur any liability without the prior permission from the central bank. The regulator has also asked the lender to desist 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.