(Yicai Global) July 12 -- Financial regulators in China’s Henan and Anhui provinces are stepping in to resolve a financial crisis that has engulfed a number of floundering rural banks in the region, that resorted to unscrupulous means to prevent depositors from withdrawing cash. Local governments will first give savers back their money as they deal with the ongoing probe.

Savers who have deposits of no more than CNY50,000 (USD7,430) in any single account at Yuzhou Xin Minsheng Village Bank, Shangcai Huimin County Bank, Zhecheng Huanghuai Community Bank and New Oriental Country Bank of Kaifeng will have the principal amount returned to them starting from July 15, the Henan Provincial Financial Supervision Bureau said yesterday. Refunds to those with more in their accounts will follow.

And those who have accounts with the Guzhen New River Huai Village and Township Bank will be repaid in the same manner, the financial administration in Bengbu, eastern Anhui province, said.

Henan province’s Rural Credit Cooperatives Union and the Bengbu branch of Agricultural Bank of China will act as the intermediary organizations handling the refunds.

The five rural banks found themselves in the spotlight recently after many depositors, attracted by their higher-than-average rates of 5 percent, found they were unable to withdraw cash last month as their health codes had mysteriously turned red, preventing them from leaving their homes. This sparked an investigation into an organization called New Wealth Group whose owner has stakes in the banks.

It was found that Lv Yi controls hundreds of companies and their shareholdings cross over, a person who worked at an affiliate of Henan New Wealth told Yicai Global earlier, adding that Lv’s name never appears on the company documents. For instance, Xuchang Rural Commercial Bank, which is controlled by Lv through a complex network of shareholders, is the biggest stakeholder in four of these banks.

In this way, Zhengzhou-based Henan New Wealth was able to infiltrate some urban and rural commercial banks and use their stakes in other financial institutions to leverage funds which it then lent out at usurious rates.

The gang ran a financial services platform called Junzheng Zhida Technology which allegedly used some of the deposits it channeled to the rural banks to extend fake loans. Lv’s network also set up a company called Chenyu Information Technology which could delete, block and tamper with data. These are all criminal acts, police in Xuchang, Henan province said.

The four Henan banks each said on July 4 that they have elected new chairpersons and approved a new list of senior managers. But no further details were given.

Editors: Dou Shicong, Kim Taylor