RBI curbs Gujarat State Employees Cooperative Bank operations under Section 35A

The Gujarat State Employees Cooperative Bank has been barred from issuing new loans and undertaking certain banking transactions following regulatory restrictions imposed under Section 35A of the Banking Regulation Act.

The action taken by the Reserve Bank of India aims to safeguard depositors’ interests, ensure sound management, and maintain banking discipline. The bank has also been directed to prominently display notices informing customers about the restrictions.

This comes after alleged financial irregularities involving the bank’s CEO, Vallabh Desai, who is accused of orchestrating a fraud worth ₹10.66 crore. Investigations revealed that funds were transferred from 172 accounts through RTGS, while unauthorised withdrawals were made from 29 accounts. A complaint has been filed with the CID Crime branch.

Under the restrictions, the bank will not be able to grant new loans, accept fresh deposits or make investments using depositors’ funds. It will also require prior approval from the RBI before selling any assets.

However, customers will be allowed to withdraw money from their savings and current accounts, and the bank has been permitted to meet essential expenses such as staff salaries, rent and electricity bills. It has also been instructed not to adjust savings balances against outstanding loans.

Sources said the RBI had earlier held discussions with the bank’s management to improve governance standards, but the failure to take corrective measures led to the imposition of curbs.

While the bank’s licence has not been cancelled, the restrictions are typically imposed in cases of weak financial health or poor management to prevent further losses to depositors.

Depositors remain protected under the insurance cover of up to ₹5 lakh provided by the Deposit Insurance and Credit Guarantee Corporation. No decision has yet been taken on the bank’s liquidation, with efforts likely to focus on its revival.