RBI Freezes Customer Withdrawals at Sri Mahatma Basaveshwar and Tiruvalla Urban Co-operative Banks — October 9, 2026

The Reserve Bank of India (RBI) has clamped down on two cooperative lenders—Karnataka-based Sri Mahatma Basaveshwar Co-operative Bank Ltd., Afzalpur, and Kerala-based The Tiruvalla Urban Co-operative Bank Ltd., Tiruvalla—placing them under stringent directions due to critical liquidity concerns and inadequate corrective action by their management teams.

The directions, invoked under Section 35A read with Section 56 of the Banking Regulation Act, 1949, came into effect from the close of business on October 8, 2026, and will remain operational for a period of six months, subject to review by the central bank.

Zero Withdrawals Permitted for Depositors

Under the regulatory directives, the central bank has imposed a total freeze on customer withdrawals. Account holders across savings bank, current, or any other deposit accounts will not be allowed to withdraw any funds from the two troubled institutions until further notice.

However, the banking regulator has allowed borrowers to set off their existing loans against their deposits, subject to conditions specified in the directive.

Operational Curbs and Permitted Outflows

In addition to halting withdrawals, the RBI has severely restricted the day-to-day operations of both cooperative institutions. Neither bank can conduct major financial business without prior written clearance from the central bank.

Key Operational Restrictions:

• Granting or renewing any loans and advances.
• Making fresh investments across financial instruments.
• Incurring liabilities, including borrowing funds and accepting fresh deposits.
• Disbursing payments, transferring funds, or alienating and disposing of any property or assets.

The RBI did, however, carve out specific exemptions to maintain basic branch functionality, permitting both banks to pay essential day-to-day administrative expenses, including staff salaries, office rent, and electricity bills.

DICGC Safety Net and Regulatory Rationale

The central bank noted that it had engaged extensively with the boards of directors and senior management of both banks over the past few years to address operational deficiencies. However, the failure of the lenders to implement viable corrective measures compelled the regulator to step in to safeguard depositor interests.

To reassure retail customers, the RBI confirmed that depositors are protected by statutory safety nets. Under the provisions of the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961, eligible depositors will be entitled to claim insurance coverage up to a limit of Rs 5 lakh against their total deposits, subject to submission of claims and requisite verification.

The RBI further clarified that the issuance of directions should not be construed as a cancellation of their banking licences. Both lenders will continue to function under regulatory supervision and operational limits until their liquidity profile and financial health show measurable improvement.

Tags: Reserve Bank of India Sri Mahatma Basaveshwar Co-operative Bank Tiruvalla Urban Co-operative Bank DICGC Banking Regulation Act Cooperative Banking