RBI imposes Section 35A curbs on Puducherry Co-operative Urban Bank

The Enforcement Action

The Reserve Bank of India (RBI) has placed Puducherry Co-operative Urban Bank Ltd under all-inclusive supervisory Directions, freezing most of its business and capping depositor withdrawals at ₹5,000 per account. The restrictions took effect from the close of business on October 21, 2026, and will remain in force for six months, subject to review.

According to RBI Press Release 2026-2027/1362, dated October 21, 2026, the central bank acted under sub-section (1) of Section 35 A read with Section 56 of the Banking Regulation Act, 1949. The underlying Directive carries the reference CHN.DoS.UCBs.No.S336/16-05-847/2026-2027 and is dated October 19, 2026.

The RBI stated that it had "in the recent past engaged with the Board and Senior Management of the bank" to improve its functioning. However, per the release, a "lack of concrete efforts taken by the bank to address the supervisory concerns", together with the need to protect depositors, "necessitated issuance of these Directions". The RBI also cited "the bank's present liquidity position" as the reason for the withdrawal cap.

The action is supervisory, not punitive. The RBI's release makes no finding of fraud or misconduct against any individual, and it names no officer or director of the bank. The bank has not publicly responded to the Directions.

How the Scheme Worked

This matter does not involve an alleged investment scheme. It is a supervisory intervention, and the "scheme" readers need to understand is how the RBI's restriction regime operates and how the bank reached this point, as the official release describes it.

The supervisory build-up. Per the release, the RBI first engaged directly with the bank's Board and Senior Management "for improvement in its functioning". The release does not specify the precise supervisory concerns, the period over which engagement took place, or the bank's financial ratios. What it records is the outcome: the RBI concluded that the bank had not made concrete efforts to address those concerns, and it moved to formal Directions.

What the bank can no longer do. From the close of business on October 21, 2026, the bank shall not, without prior written approval of the RBI:

• grant or renew any loans and advances;
• make any investment;
• incur any liability, including borrowing funds and accepting fresh deposits;
• disburse or agree to disburse any payment, whether in discharge of its liabilities and obligations or otherwise;
• enter into any compromise or arrangement; or
• sell, transfer or otherwise dispose of any of its properties or assets,

except as notified in the RBI Direction dated October 19, 2026.

What depositors can still do. Considering the bank's liquidity position, the RBI directed it to permit withdrawal of an amount not exceeding ₹5,000 from savings bank, current or any other account of a depositor. The bank is also allowed to set off loans against deposits, subject to conditions stated in the Directions. In practical terms, a borrower who also holds a deposit with the bank may be able to have the deposit adjusted against an outstanding loan.

What the bank can still spend on. The bank may incur expenditure on certain essential items, such as salaries of employees, rent and electricity bills, as specified in the Directions. The RBI has directed that a copy of the Direction be displayed on the bank's website and premises for public perusal.

Timeline. The Directive was issued on October 19, 2026; the restrictions took effect at the close of business on October 21, 2026; and the press release was issued the same day. The Directions run for six months from that date.

The Law Invoked

The release cites two statutes.

Section 35 A of the Banking Regulation Act, 1949, specifically sub-section (1), is the provision under which the RBI may issue directions to banks where it is satisfied that this is necessary, among other grounds, in the public interest or to protect the interests of depositors. It is the standard legal basis for the RBI's all-inclusive restriction orders on troubled banks.

Section 56 of the Banking Regulation Act, 1949 applies the provisions of the Act to co-operative societies, with modifications. It is the reason the RBI's directions powers reach urban co-operative banks such as this one.

The release also refers to the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (the DICGC Act), under which eligible depositors are entitled to receive a deposit insurance claim amount of up to ₹5,00,000, "in the same capacity and in the same right", as applicable under that Act. The release does not cite any specific section of the DICGC Act, and we do not supply one.

What Happens Next

The Directions remain in force for six months from the close of business on October 21, 2026, and are subject to review. The RBI said it "continues to monitor the position of the bank" and will take necessary actions, including modifications of the Directions, as warranted, depending upon circumstances and in the interest of depositors.

Crucially, the RBI stated that the issue of these Directions "should not per se be construed as cancellation of the banking license". The bank will continue to undertake banking business, subject to the restrictions, until its financial position improves. At the end of the six-month period, the RBI may relax, modify or extend the Directions. Extensions are a routine part of this process: in the same week, for example, the RBI separately announced an extension of the period of Section 35A Directions on The Konark Urban Co-operative Bank Ltd., Ulhasnagar.

For depositors, the parallel track is deposit insurance. Per the release, eligible depositors will receive their DICGC claim amount "based on submission of willingness by the depositors concerned and after due verification". Depositors are advised to contact the bank's officials for further information and may consult the DICGC website, www.dicgc.org.in.

What It Means

For depositors of Puducherry Co-operative Urban Bank, the immediate effect is practical: access to funds above ₹5,000 per account is frozen, but deposit insurance covers eligible deposits up to ₹5 lakh in the same capacity and same right. The most important step is to submit the willingness declaration through the bank so that any DICGC claim can be verified and processed. Depositors whose balances exceed ₹5 lakh in a single capacity should note that the release does not indicate how any amount above the insurance ceiling would be treated.

Borrowers should note that loan obligations continue. The set-off facility, subject to the conditions in the Directions, may allow some to reduce a loan by adjusting a deposit against it, and those with both a deposit and a loan at the bank should ask its officials whether this applies to them.

For savers more broadly, the action follows a familiar pattern for urban co-operative banks: supervisory engagement, followed by all-inclusive Directions when the RBI concludes that concerns have not been addressed. Three habits help. First, keep deposits at any single bank, in any one capacity, within the ₹5 lakh DICGC cover. Second, check that your bank is DICGC-insured; the DICGC website publishes the list of insured banks. Third, watch the RBI's press releases page, where Section 35A actions on co-operative banks are published as they happen. None of this is a reason for alarm about the wider banking system; it is ordinary risk management for depositors.

FAQ

Has the RBI made any finding against the bank's management?

No. The RBI's release makes no finding of fraud or misconduct against the bank or any individual, and names no officer or director. It describes a supervisory action taken because, in the RBI's assessment, the bank did not make concrete efforts to address supervisory concerns, and because of its present liquidity position. The Directions are designed to protect depositors while the bank's position is reviewed.

What exactly did the RBI order?

Under Section 35 A(1) read with Section 56 of the Banking Regulation Act, 1949, the RBI barred the bank, without its prior written approval, from granting or renewing loans, making investments, incurring liabilities including accepting fresh deposits, making payments, entering compromises, or disposing of assets. Withdrawals are capped at ₹5,000 per depositor account, for six months from October 21, 2026.

Has the bank's licence been cancelled?

No. The RBI stated that the Directions should not per se be construed as cancellation of the banking licence. The bank will continue to undertake banking business, subject to the restrictions, until its financial position improves. The RBI may modify the Directions depending on circumstances.

How much of my deposit is protected?

Per the release, eligible depositors are entitled to a DICGC deposit insurance claim of up to ₹5,00,000 in the same capacity and the same right, under the DICGC Act, 1961. The claim depends on the depositor submitting willingness and on due verification. Contact the bank's officials, or see www.dicgc.org.in, for the process.

Where can I read the official order?

The RBI's press release is available on the RBI website as Press Release 2026-2027/1362, dated October 21, 2026. The RBI has also directed the bank to display a copy of the Direction dated October 19, 2026 on its website and premises for public perusal.

This report is based on the official RBI press release dated October 21, 2026 announcing Directions under Section 35 A of the Banking Regulation Act, 1949. It was surfaced via coverage in The Economic Times.