RBL Bank depositors protected, unanswered questions remain: AIBEA

Depositors of the RBL Bank Ltd need not worry about the safety of their money as Section 45 of Banking Regulation Act will protect their interests, said a top leader of All India Bank Employees' Association (AIBEA).

He also said the branch expansion by RBL Bank within a short span of time -- from 92 branches in 2010 to 196 in 2015 and 462 in 2021 -- resulted in increased operational expenses, deposits as well as loans and finally the non-performing assets (NPA).

Allaying fears of RBL Bank depositors on the safety of their money C.H. Venkatachalam, General Secretary, AIBEA told IANS: "Section 45 of the Banking Regulation Act gives the depositors the necessary protection."

As per Section 45 of the Banking Regulation Act, the Reserve Bank of India (RBI) has the power to apply to the Central Government for suspension of business by a banking company and to prepare a scheme of reconstitution of amalgamation.

It may be recalled, sometime back, Tamil Nadu based Lakshmi Vilas Bank (LVB) was amalgamated with DBS Bank when the former's financial position went bad.

While the LVB shareholders did not get anything, the funds of the depositors were safe.

"The RBI may impose a moratorium and some other conditions on withdrawal of deposits when it amalgamates a weak bank with another. But the depositors will not lose out," Venkatachalam said.

The RBI on its part said the bank's financial condition is stable.

"As per half yearly audited results as on September 30, 2021, the bank has maintained a comfortable Capital Adequacy Ratio of 16.33 per cent and Provision Coverage Ratio of 76.6 per cent. The Liquidity Coverage Ratio (LCR) of the bank is 153 per cent as on December 24, 2021 as against regulatory requirement of 100 per cent," the RBI said.

Venkatachalam and IANS had queries about the safety of depositors monies.

While agreeing growth is important for any organisation, Venkatachalam said it should be in a phased manner.

The basic business cycle for any organisation is grow-consolidate-grow-consolidate.

"The RBL Bank grew its branch network from 196 in 2015 to 462 in 2021. This increased the bank's operational expenses as well as deposit base. Further the credit-deposit ratio too went up. Monitoring and recovering small loans is difficult for banks," Venkatachalam said.

As per the Section 36AB, RBI can appoint additional directors in the interests of the bank or its depositors.

In the case of RBL Bank, the RBI said that appointment of Additional Director/s in private banks is undertaken under Section 36AB of the Banking Regulation Act, as and when it is felt that the board needs closer support in regulatory/ supervisory matters.

However, the big question is, if the financial condition is stable and strong, why did RBI appoint an additional director under Section 36AB of the Banking Regulation Act?

"What is bugging RBI about RBL Bank to warrant such a move," Venkatachalam and other experts wondered.

According to Venkatachalam, the RBI nominee was already on the board of RBL Bank and what that person did should also be pondered about.