* Depositors upset by loan that may have been used by govt
* Govt farm bank needs funds for controversial rice scheme
* Savings Bank is sound - central bank and banking analyst (Adds comment from central bank, customers)
By Orathai Sriring and Pairat Temphairojana
BANGKOK, Feb 18 (Reuters) - A revolt by depositors caused Thailand's Government Savings Bank (GSB) to beat a hasty retreat on Tuesday and scrap a loan it had made to a state farm bank that could have been used to prop up a politically controversial rice-buying programme.
The central bank said the GSB was in a strong financial position and the withdrawals had in no way undermined it.
The GSB said on Sunday it had lent 5 billion baht ($155 million) to the Bank for Agriculture and Agricultural Cooperatives (BAAC), which manages the government's rice programme and has all but run out of money to pay farmers.
Some depositors, either worried the loan could somehow destabilise the bank or unwilling to see their money used to help the government, lined up to take out cash this week.
An unusually high 30 billion baht, 1.6 percent of deposits, was withdrawn on Monday, although 10 billion was also put in.
GSB Chairwoman Choojira Kongkaeow told reporters on Tuesday that the bank was calling back the loan and had also cancelled a credit line for 20 billion baht to the farm bank.
"The bank's board and executives as well as the union met and came up with resolutions to restore confidence of depositors and to give the facts to people and let them decide," she said.
At one branch in Bangkok's Sathorn district, a note was taped to the door.
"The Government Savings Bank has stopped giving loans to the BAAC and has asked for its money back already," it read. "So we urge customers not to worry and not to withdraw money from the bank: the bank will take good care of your money."
Salinee Wangtal, an assistant governor at the Bank of Thailand, told Reuters the GSB had enough cash to satisfy anyone wanting to withdraw their savings.
"I'm confident the GSB can manage this. It's a big state bank, with a strong position and good profits," she said.
She is a customer of the bank and, as a show of confidence, had just deposited some money with it.
Woravit Chailimpamontri, the GSB's president, said he had submitted his resignation, taking responsibility for the loan.
On Monday, he had told a news conference that most of the withdrawals had been from branches in Bangkok and the south, areas where opposition to the government is strong.
Protesters have been trying to topple Prime Minister Yingluck Shinawatra since November. Bangkok's middle class is particularly incensed by the rice scheme, considered to be riddled with corruption and a waste of taxpayers' money.
"The run on deposits at GSB showed that depositors do not agree with the bank's policy to support the government. But eventually, I think people will realise the GSB has a strong position and is guaranteed by the government," said Monchai Jaturanpinyo, a banking analyst at CIMB Securities (Thailand).
Some savers were still making a political point on Tuesday.
"I'm withdrawing money as a symbolic statement to show I don't like what the government is doing with its corruption," said Tawat Sanmontri, 55, at the branch in Sathorn.
People were lining up to get into another branch at Chamchuree Square in the late afternoon.
"I will be closing my account today because I am worried about my money. I gave my trust to the bank but they made me lose faith recently because of what the government did to the farmers," said Daranee Popar, 73, a customer for decades.
Some people were supporting the bank, however, notably Panthongtae Shinawatra, son of Thaksin Shinawatra, a former premier who was ousted by the army in 2006 but is widely seen as the power behind his sister Yingluck, the current premier.
A posting on his Facebook page showed him, wearing a red shirt like Thaksin's loyal supporters, depositing what he said was just over 11 million baht ($341,000) in a Government Savings Bank account. He urged other people to do the same. ($1 = 32.2700 baht) (Additional reporting by Khettiya Jittapong, Kitiphong Thaichareon and Amy Sawitta Lefevre; Writing by Alan Raybould; Editing by Clarence Fernandez and Robert Birsel)
Our Standards: The Thomson Reuters Trust Principles.