RBI takes strict action against this Himachal Pradesh bank: Withdrawal Limit Set at ₹10,000 per Customer

RBI Action on Baghat Urban Co-operative Bank: Customers Can Withdraw Only ₹10,000 at a Time

The Reserve Bank of India (RBI) has imposed strict regulatory restrictions on Baghat Urban Co-operative Bank, located in Solan, Himachal Pradesh, following concerns over its financial health. As part of these restrictions, depositors can now withdraw a maximum of ₹10,000 per account holder from their savings or current accounts, reflecting the central bank’s effort to safeguard the interests of depositors.

RBI Restricts Bank Operations to Protect Depositors

According to the RBI directive, the Baghat Urban Co-operative Bank will not be allowed to issue new loans, provide advances, or accept new deposits without prior approval from the central bank. The RBI’s decision aims to prevent further financial deterioration and ensure that customer deposits remain protected while the bank attempts to stabilize its position.

This means that the bank’s operations will continue under strict monitoring, but it cannot engage in any new financial commitments. Such steps are typically taken when a financial institution is found struggling with liquidity issues or is unable to maintain the required capital adequacy.

Withdrawal Limit and Customer Relief Measures

As per the latest RBI order, customers can withdraw only up to ₹10,000 from their total account balance. However, the bank retains the right to adjust any outstanding loans or dues against the depositor’s available balance before allowing withdrawal.

For added security, customers’ deposits continue to be covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, which ensures a maximum insurance coverage of up to ₹5 lakh per depositor. This means that in the unlikely event of the bank’s failure, depositors can still recover their insured amount within the prescribed limits.

Restrictions Are Temporary, Not a License Cancellation

The RBI has clarified that this action does not imply the cancellation of the bank’s license. The restrictions are preventive and temporary, designed to give the bank time to improve its financial health. The bank will continue operating under the supervision of the central bank until it can demonstrate financial stability and compliance with RBI’s norms.

The apex bank’s statement emphasized that these measures are intended to restore confidence and maintain orderly functioning of the co-operative banking sector. RBI expects the management of Baghat Urban Co-operative Bank to take corrective steps to strengthen its finances and resume normal operations once stability is achieved.

Why RBI Takes Such Steps

The RBI typically imposes operational restrictions when a bank’s liquidity position weakens or when it fails to meet key financial obligations. In such cases, limiting withdrawals prevents a bank run—a situation where multiple customers withdraw funds simultaneously, worsening the institution’s financial stress.

This decision also acts as a cautionary signal to other co-operative banks to maintain adequate capital reserves, follow prudent lending practices, and ensure transparency in their financial reporting.

Broader Implications for the Co-operative Banking Sector

The incident once again highlights the vulnerabilities in India’s co-operative banking system, which has faced several similar cases in recent years. While co-operative banks play an important role in supporting rural and semi-urban economies, they often operate under resource constraints and governance challenges.

RBI’s proactive intervention in the Baghat Urban Co-operative Bank case underscores its ongoing commitment to protecting depositors and maintaining trust in the banking ecosystem. These restrictions, though stringent, are a necessary step to stabilize the bank and prevent wider financial repercussions.

As the situation unfolds, the RBI is expected to closely monitor the bank’s recovery process. Once its liquidity and compliance levels improve, the regulator may consider relaxing the restrictions gradually.

In summary, the RBI’s move aims to strike a balance between protecting depositor interests and giving the Baghat Urban Co-operative Bank a chance to revive its financial health. Until then, customers can access their funds within the ₹10,000 limit, assured that their deposits remain insured and safeguarded under RBI’s watch.