The Reserve Bank of India (RBI) has taken decisive action against the New India Co-operative Bank, imposing stringent restrictions effective February 13, 2025, to safeguard depositors' interests amid concerns over the bank's liquidity position. The RBI's latest move bars the Mumbai-based lender from issuing new loans, accepting fresh deposits, making investments, disbursing payments, or even selling any of its properties. This period of enforced inactivity will last for six months, subject to review.
These directions, according to the RBI, stem from what officials describe as "recent material developments" within the bank. Although the specific details were not disclosed, the regulator's actions are meant to protect depositors following the bank's reported financial distress. Eligible depositors are entitled to deposit insurance claims of up to ₹5 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme.
A spokesperson for the RBI stated, "Considering the bank’s present liquidity position, the bank has been directed not to allow withdrawal of any amount from savings bank or current accounts or any other account of a depositor but is allowed to set off loans against deposits." This restriction signifies serious ramifications for depositors who rely on access to their funds.
At the end of March 2024, New India Co-operative Bank had deposits totaling approximately ₹2436 crores, with its advances decreasing from ₹13.30 billion to ₹11.75 billion year-over-year. This decline reflects the challenges the bank has faced recently, as it reported substantial losses of ₹307.5 million and ₹227.8 million over the last two fiscal years, raising alarms about its fiscal sustainability.
Despite the severe limitations, the RBI clarified through their official statement, "These directions do not mean the lender's banking license is cancelled and the bank will continue to undertake banking business subject to restrictions specified." This ensures the institution remains operational, albeit under closely monitored conditions.
The RBI's intervention draws attention to past scenarios, particularly referencing the 2019 case of the Punjab and Maharashtra Co-operative Bank, which faced regulatory actions due to severe financial irregularities. The RBI mandated significant operational constraints on the Punjab and Maharashtra Co-operative Bank, which later culminated with its transfer of assets to Centrum Financial Services.
Concerns about the liquidity position of co-operative banks have increased over the past few years, especially as several institutions have reported substantial losses and irregularities. The RBI stresses the importance of ensuring the interests of depositors are prioritized, particularly in the co-operative banking sector, where trust is foundational to depositor confidence.
This measure taken against New India Co-operative Bank is indicative of the RBI's proactive approach in overseeing banks, reflecting its commitment to maintaining stability within the financial system. The regulatory body will continue vigilance over the developments at the bank and will be prepared to adjust its directives accordingly.
Depositors are advised to submit claims to the bank and must be informed of their right to the insurance coverage for up to ₹5 lakh, reassuring them of some financial security during this turbulent period.
With the RBI closely monitoring the New India Co-operative Bank and the banking sector's health, the recent measures signal both caution and care concerning the management of depositor funds. The future of the co-operative bank remains uncertain, but the focus on protecting depositor interests reflects the RBI's overarching role of preserving stability within India’s banking framework.