RBI Puts Puducherry Co-operative Urban Bank Under Directions: ₹5,000 Withdrawal Cap
The Reserve Bank of India has placed Puducherry Co-operative Urban Bank Ltd. under all-inclusive directions issued under Section 35A read with Section 56 of the Banking Regulation Act, 1949. The directions took effect from the close of business on 21 October 2026 and will run for six months, subject to review. From that point a depositor can withdraw only up to ₹5,000 out of the balance in savings, current or any other account, and the bank cannot lend, take fresh deposits, borrow, invest or pay out money without the RBI's prior written approval.
The directive itself, Ref. CHN.DoS.UCBs.No.S336/16-05-847/2026-2027, is dated 19 October 2026 and was announced through RBI Press Release 2026-2027/1362 on 21 October 2026. The RBI says it had engaged with the bank's board and senior management on improving the bank's functioning, but the bank made no concrete efforts to address supervisory concerns or protect depositors' interests.
What the Section 35A directions block at Puducherry Co-operative Urban Bank
Without prior written approval of the RBI, the bank cannot:
- grant or renew any loan or advance;
- make any investment;
- incur any liability, including borrowing funds;
- accept fresh deposits;
- make any payment, except as the directions permit;
- enter into any compromise or arrangement, or sell, transfer or otherwise dispose of its properties or assets.
The bank may still incur expenditure on essential items such as salaries of employees, rent and electricity bills, as specified in the directions. Loans may be set off against deposits, subject to the conditions laid down in the directions. For a borrower who also holds deposits with the bank, that set-off is the main route through which the deposit balance does any work while the restrictions last.
The RBI has not cancelled the banking licence. The bank can continue to carry on banking business with these restrictions until its financial position improves, and the RBI may modify the directions depending on circumstances.
DICGC cover of ₹5 lakh and the 90-day claim timeline
Every eligible depositor can claim deposit insurance from the Deposit Insurance and Credit Guarantee Corporation (DICGC) of up to ₹5,00,000, in the same capacity and same right, on submission of a willingness declaration and verification. The limit covers principal and interest together. According to the DICGC guide to deposit insurance, a depositor with ₹4,95,000 of principal and ₹4,000 of interest is fully covered at ₹4,99,000, while a depositor whose principal alone is ₹5 lakh gets no cover for the accrued interest.
For a bank under all-inclusive directions, Section 18A of the DICGC Act fixes the timetable. The date on which the RBI imposes the directions is the cut-off date, and claim amounts are worked out as on that date. The bank must submit the depositor-wise claim list, certified by its CEO or administrator, within 45 days. The DICGC verifies the claims within 30 days of receiving them and pays within 15 days of verification, so the whole cycle has to close within 90 days. The DICGC claims FAQs for banks add that the list is prepared after setting off dues such as loans and advances, and after clubbing deposits held in the same capacity and same right; the claim amount includes interest. Depositors file the willingness form, with identity documents, with the bank's CEO or administrator.
Taking 21 October 2026 as the cut-off date, the dates work out as follows (illustration of the statutory periods):
| Step under Section 18A | Period | Date falls on |
|---|---|---|
| Directions imposed (cut-off date) | Day 0 | 21 October 2026 |
| Bank submits certified depositor claim list to DICGC | Within 45 days | 5 December 2026 |
| DICGC verifies and pays eligible claims | Within 90 days of the directions | 19 January 2027 |
| Six-month period of the directions ends, unless extended | Six months | 21 April 2027 |
How the ₹5 lakh limit applies to individuals, firms and joint accounts
Deposits held in the same capacity and same right at one bank, across all its branches, are added together and share one ₹5 lakh limit. Deposits held in a different capacity get separate cover: an account held as a partner of a firm, as guardian of a minor, as a director of a company or as a trustee is insured on its own. Joint accounts with the same names in the same order are aggregated; joint accounts in which the names appear in a different order, or with a different set of holders, are covered separately.
An illustration. Ramesh holds a savings account of ₹2,40,000 and a fixed deposit of ₹3,00,000 with ₹18,000 of accrued interest in his own name, and he operates a current account of ₹4,10,000 as a partner of his firm. He also owes the bank ₹60,000 on a personal loan.
- Individual capacity: ₹2,40,000 + ₹3,00,000 + ₹18,000 = ₹5,58,000. After set-off of the ₹60,000 loan, the claim is ₹4,98,000, which is within the limit and fully insured.
- Without the loan, the same ₹5,58,000 would be capped at ₹5,00,000, leaving ₹58,000 uninsured and dependent on the bank's eventual recovery.
- Partner-of-firm capacity: the ₹4,10,000 current account is insured separately and in full.
Some deposits sit outside the scheme altogether. The DICGC does not insure deposits of the Central or State Governments, deposits of foreign governments, inter-bank deposits, or amounts due on deposits received outside India.
Practical steps for businesses and their accountants
For a business that banks with Puducherry Co-operative Urban Bank, the ₹5,000 cap effectively freezes the current account. Standing instructions, NACH or ECS mandates, salary runs and statutory payments routed through that account will fail, so they need to move to another bank now, and the bank details registered with customers, the GST portal and the income-tax portal need updating to the new account. Cheques already issued on the account and still in transit are worth tracking, since the bank cannot make payments outside what the directions allow.
Depositors should keep passbooks, fixed deposit receipts and KYC documents ready for the willingness declaration, and check that the capacity in which each account is held (individual, firm, trust, guardian) is recorded correctly, because that decides how many ₹5 lakh limits apply. For entities whose accounts are audited, balances with the bank above the insured amount, and fixed deposits that can no longer be renewed or encashed at will, need to be looked at for recoverability and classification when the next financial statements are drawn up.
How long such directions usually last
Six months is only the first term. In a separate RBI press release dated 19 October 2026 on The Konark Urban Co-operative Bank Ltd., Ulhasnagar, the RBI extended directions first imposed on 23 April 2024 for a further three months, to the close of business on 23 January 2027, and said that the extension should not be read as satisfaction with the bank's financial position. Depositors in Puducherry should plan on the DICGC route, not on an early lifting of the restrictions. The first date to watch is 5 December 2026, by which the bank's certified claim list has to reach the DICGC.
Official source: View the official source document
