MUMBAI: The Reserve Bank of India (RBI) has imposed strict restrictions on the New India Co-operative Bank, halting all withdrawals for six months due to serious supervisory concerns. This action is aimed at protecting the interests of the bank's depositors amid allegations of misappropriation of funds. The RBI described these measures as necessary to stabilize the bank's financial position.
On February 13, 2025, the RBI directed the bank to stop allowing any withdrawals from savings, current, or other accounts. Deposit account holders can only set off loans against their deposits under certain conditions. Essential expenditures, including salaries and utility bills, can still be managed, but the bank cannot grant or renew loans or accept new deposits without prior RBI approval.
The RBI's intervention follows alarming findings during recent inspections, which highlighted significant governance issues within the bank. Allegations of internal fraud prompted the bank's chief compliance officer to file formal complaints with the Economic Offences Wing of the Mumbai Police.
Following the restrictions, depositors flocked to the bank's several branches, particularly across Mumbai, seeking answers and reassurance about their deposits. Many customers, including seniors with their life savings and small business owners relying on daily funds, expressed panic and frustration at the bank's sudden unavailability. An elderly depositor at one branch lamented, "I have 5 lakhs stuck here! How am I supposed to pay for my wife's medical expenses?"
According to the RBI, eligible depositors are covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, which offers insurance up to ₹5 lakh per depositor. The RBI has assured customers this amount, inclusive of principal and interest, will be available within 90 days, but this assurance has done little to pacify anxious account holders eager for immediate access to their money.
Gaurav Gupte, partner at Cyril Amarchand Mangaldas, explained the legal backdrop, stating, "Section 18 of the DICGC Act obliges the DICGC to make payments to depositors should the RBI issue directions under the Banking Regulation Act." He emphasized the process for accessing these insurance claims involves verification, which may prolong the wait for many depositors.
On February 14, the RBI took another decisive step by superseding the board of directors of the New India Co-operative Bank for 12 months. The central bank appointed Shreekant, former chief general manager of the State Bank of India, as the administrator to oversee operations during this tumultuous period.
This recent move draws parallels to the RBI's past interventions with institutions like PMC Bank and YES Bank, where similar banking restrictions were employed amid management failures and liquidity crises. Such precedents highlight the extent to which the RBI is willing to go to protect the financial ecosystem and maintain depositor confidence.
With over 1.3 lakh depositors affected by these restrictions, most of whom are insured, the RBI's actions appear to prioritize the safeguarding of depositors' interests. Despite this coverage, depositors with savings exceeding ₹5 lakh are left with unanswered concerns about the fate of their larger sums.
While the RBI's directive does not entail liquidation or loss of the bank's license, it creates uncertainties around the future of the New India Co-operative Bank. Industry analysts suggest the bank may eventually be taken over or amalgamated with another financial institution if sufficient financial stability cannot be restored.
Community feedback has been largely negative, with representatives from local consumer advocacy groups expressing their discontent. Shirish Deshpande, chairman of Mumbai Grahak Panchayat, urged the RBI to engage with depositors directly to understand their plight and review decision-making processes concerning the bank's operations.
One depositor, reflecting on the challenging atmosphere, said, "These restrictions have put thousands at risk, many of whom are seniors with no other source of income. We need clarity on the bank's future and our investments."
The crux of the matter revolves around how the bank regains its footing amid these disruptions, ensuring confidence among depositors remains intact. The RBI's close monitoring of the situation aims to balance depositor needs against the long-term health of the financial institution.
This growing crisis not only impacts account holders but serves as a reminder of the inherent risks present within the cooperative banking sector, calling for more rigorous oversight and management practices moving forward.
While depositors cling to hope of receiving their hard-earned savings, the RBI's next steps will be pivotal as it carefully navigates the tumultuous waters of banking recovery and regulatory compliance.