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Prudential Bank stops premature payments -- RBI steps in to avert liquidity crisis

C.R. Sukumar

Senior RBI officials advised the management not to entertain premature closure of deposits, to prevent the bank from slipping into a liquidity crisis, the Chairman, Mr Boorugu Muralidhar, said.

HYDERABAD, March 11

HAVING paid a little over Rs 60 crore to its retail depositors in the last two days, mostly in premature deposits, Prudential Bank, the Hyderabad-based Rs 1,000-crore cooperative bank, stopped entertaining withdrawal of premature deposits from Monday morning.

Senior officials of the Reserve Bank of India advised the bank management on Monday not to entertain premature closure of deposits, to prevent the bank from slipping into a liquidity crisis, the Chairman, Mr Boorugu Muralidhar, told Business Line.

The apex bank authorities also advised the co-operative bank's management to prominently display the circular issued by the RBI Executive Director, Mr P.B. Mathur, in the second quarter of the current fiscal on the payment of deposits prematurely. This statement would help convince the depositors.

The RBI circular directs cooperative banks: "Financial prudence demands that banks do not take up repayment of fixed deposits which are not due for repayment unless the banks are in a position to do so after ensuring discharge of all their current obligations.''

Prudential Bank has set aside Rs 137 crore towards maintaining its statutory liquidity ratio (SLR) and over Rs 20 crore towards maintaining its cash reserve ratio (CRR).

Stating that the bank enjoys a liquidity of Rs 150 crore, Mr Muralidhar said further large-scale premature payments towards deposits would be inviting unwanted adversities. Under pressure from thousands of retail depositors during the last two days, including Sunday, the bank had cleared most of the premature withdrawal requests.

Admitting that the RBI directive to the cooperative banks to withdraw their inter-bank deposits had caused some pressure on the bank, Mr Muralidhar said the bank currently had inter-bank deposits of around Rs 30 crore as against Rs 90 crore in August last year. However, he said it was in a position to clear all the inter-bank deposits by June as directed by the apex bank, provided there was no pressure to clear premature deposits.

"We hope to prevail on our depositors not to prematurely withdraw their deposits. As all our advances are 100 per cent recoverable with sufficient collateral security, our depositors need not worry about the safety of their deposits,'' Mr Muralidhar said. As on March 31, 2001, the bank's deposits stood at Rs 536.4 crore and advances at Rs 427.48 crore. On an equity base of Rs 4.64 crore, its reserves amounted to Rs 68.89 crore. The bank invested Rs 169.63 crore in deposits and bonds of various Government institutions.

This includes Rs 92.7 crore as deposits with Andhra Pradesh State Co-operative Bank, Rs 19.53 crore with Hyderabad District Co-operative Central Bank, Rs 44.9 crore as a development loan to Andhra Pradesh State, Rs 1.5 crore in bonds of IDBI and Rs 11 crore in APSEB bonds.

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Prudential Bank stops premature payments -- RBI steps in to avert liquidity crisis


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