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RBI to meet fund needs of co-op banks

The Reserve Bank of India said on Wednesday it would provide special liquidity support to co-operative banks in the state of Gujarat, some of whom are reported to be facing a cash crunch following excessive lending to slumping share markets.

"The Reserve Bank had already advised all concerned that these (co-operative) banks may approach public sector banks and primary dealers for repo facilities against eligible government securities held by them," a RBI statement said.

"In case the co-operative banks are unable to meet their liquidity needs from the money market, including through repos with other banks and primary dealers, they have further been advised to approach the Reserve Bank of India, Central Office, through the RBI regional director in Ahmedabad," it said.

Payment orders drawn on one co-operative bank, the Ahmedabad-based Classic Cooperative Bank, on behalf of bullion traders, have bounced, prompting several state-run banks to stop accepting cheques from the co-operative banks in the region.

Another bank, the Madhavpura Mercantile Cooperative bank, faced a run on deposits last month after depositors withdrew large sums on reports it had lent heavily in capital markets and that loans had run into problems due to a slump in share prices.

The benchmark Bombay exchange top-30 share index has fallen more than 15 per cent since the end of February.

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