COOPERATIVE banks in Gujarat have suffered another blow with the Reserve Bank of India (RBI), the country's central bank, declaring one of them to be "weak."

The classification of the Visanagar Cooperative Bank (VCB) as "weak" comes after hundreds of small and big depositors burned their fingers with the Madhavpura Mercantile Cooperative Bank (MMCB).

The MMCB was involved in a Rs. 12.3 billion scam in March after its directors lent money to Ketan Parekh, a leading Mumbai broker, flouting the RBI's lending norms. Parekh lost heavily and defaulted on payments due to the bank.

Former MMCB chairman Ramesh Parikh and former CEO Devendra Pandya are under arrest on charges of flouting the RBI lending rules. The bank is sinking despite the RBI suspending its directors and appointing an administrator to revive it.

In a letter to the general manager of VCB, the RBI said that during an inspection at the bank from November 6 to 27 last year, its financial position as percentage of net erosion to net funds worked out to be a whopping 85 percent.

"Accordingly, your bank has been classified a weak bank requiring rehabilitation and is included in the list of weak banks under rehabilitation," the letter signed by A. Ganapathy, the RBI's urban banks department deputy manager, said.

"You are advised not to acquire, dispose of any of the immovable properties and to shift, change the existing places of business without our prior approval," it added.

The RBI has advised the VCB management to make a "sustained effort towards deposit mobilization and judicial deployment of funds with a view to improving profitability and management competence."

The VCB was also advised to build a strong capital base and strengthen the general internal control system, loan policy and procedures and recover dues.