RBI imposed penalty on The Vriddhachalam Co-operative Urban Bank Ltd., Vriddhachalam, 606001

 Reserve Bank of India vide Press Release dt 15/05/2018, informed to the public at large that it has imposed a monetary penalty of ₹ 2.00 lakh (Rupees two lakh) on The Vriddhachalam Co-operative Urban Bank Ltd. (No.E 81), 64 South Fort Street, Vriddhachalam, 606001.

Reserve Bank of India has imposed this monetary penalty, in exercise of the powers vested in it under the provisions of Section 47A(1)(b), for violation of the directive of the Reserve Bank prohibiting extension of loans and advances to Directors/their relatives as provided in Para 5 of Master Circular UBD.CO.BPD.MC.No.8/12.05.001/2013-14 dated July 1, 2013.

Reserve Bank of India had issued a show cause notice to the bank, in response to which the bank submitted a written reply. After considering the facts of the case and the bank's reply in the matter, Reserve Bank of India came to the conclusion that the violation was substantiated and warranted imposition of penalty.

Gist of Para 5: PROHIBITION ON LOANS AND ADVANCES

5.1 Primary (urban) cooperative banks are prohibited from making, providing or renewing either secured or unsecured loans and advances or extending any other financial accommodation to their directors, or their relatives and the firms/concerns/companies in which they are interested with effect from 1 October 2003. The existing advances may be allowed to continue upto the date when they are due.

5.2 The following categories of director-related loans are exempted from the purview of the above instructions.

(i) Regular employee-related loans to staff directors on the Board of UCBs;

(ii) Normal loans as applicable to members to the directors on the Boards of Salary Earners’ co-operative banks and

(iii) Normal employee-related loans to Managing Directors of Multi-State co-operative banks.

(iv) Loans to Directors and their relatives against Fixed Deposits and Life Insurance Policies standing in their own name.

5.3 The words ‘any other financial accommodation’ shall include funded and non-funded credit limits and underwritings and similar commitments, as under:

(a) The funded limits shall include loans and advances by way of bills purchase/discounting, pre-shipment and post-shipment credit facilities and deferred payment guarantee limits extended for any purpose including purchase of capital equipment and acceptance limits in connection therewith sanctioned to borrowers, and guarantees by issue of which a bank undertakes financial obligation to enable its constituents to acquire capital assets.

(b) The non-funded limits shall include letters of credit, guarantees other than those referred to in paragraph (a) above, and underwritings and similar commitments.

5.4 A person shall be deemed to be a relative of another, if and only if,:-

a) they are members of a Hindu Undivided Family; or

b) they are husband and wife; or

c) the one is related to the other in the manner indicated below:

Viruddhachalam (also known as Virudhachalam / Vridhachalam ) (Tamil: விருத்தாசலம்) is a municipality and taluk headquarters in Cuddalore district in the Indian state of Tamil Nadu. The ancient name of this town is Thirumudhukundram.

This is one of the oldest towns in Cuddalore district. The ancient Lord Siva temple (Pazhamalai Nadhar Temple) is located in the heart of town. The temple was constructed by one of the chola empires. It has five big towers - one in the middle, the remaining representing the four directions. The famous Kolanjiappar Temple is located 3 km away from the town.

 Both of them are located near Cuddalore - Salem highway in Virudhachalam. Vriddhachalam Railway junction is one of the most important railway junctions which connect Chennai - Madurai line to Salem, Cuddalore and Pudhucherry.

Vriddhachalam is famous for its ceramic industry. The industry with an industrial estate which only consists of the ceramic and refractory manufactures is exclusive in Vriddhachalam. Ceramic industrial estate is situated only at Vriddhachalam in the whole Tamil Nadu.

 A polytechnic college especially for ceramic technology is also situated only in Vriddhachalam for the whole Tamil Nadu. A special research center for the research of cashew and byproducts is situated in Vriddhachalam.

Vriddhachalam  ceramic industry

Overview of cluster

The ceramic industry cluster is 50 years old and started by Tamil Nadu State government by establishing a ceramic manufacturing industry with an aim to create a local ceramic industrial hub for the state.

Considering the availability of relevant raw material, a skill development institute, institute of ceramic technology was also established to create pool of trained person in the area.

Vriddhachalam cluster had more than 100 down draft kilns at one time engaged in manufacturing different ceramic and refractory products. Slowly, cluster also developed capacity to make large category of artisan and handicraft products.