The Reserve Bank of India imposed several restrictions on New India Co-Operative bank on February 13. These restrictions were imposed on the co-operative bank over ‘supervisory concerns’ that have emerged from its activities.
RBI Imposes Restrictions on New India Co-Operative Bank
The central bank has imposed restrictions on the bank from accepting new deposits, and disbursing loans.
The Reserve Bank of India issues notice to the New India Co-operative Bank Limited, Mumbai, to hold all financial operations.
The notice says, “It is hereby notified for information of the public that…the Reserve Bank of India (RBI) …has issued certain Directions to New… pic.twitter.com/uwq2Gx2eY1
— ANI (@ANI) February 14, 2025
The RBI’s restrictions took effect from the close of business on Thursday and will remain in force for six months, subject to review. The central bank also laid emphasis on given the bank’s current liquidity position.
This has led to many of the bank’s customers lining up and even protesting at the bank branches in Mumbai, worried about their hard-earned money.
#WATCH | Mumbai, Maharashtra: People gather outside the New India Co-operative Bank after the RBI issued a notice to halt all business pic.twitter.com/kkzXmCIMqe
— ANI (@ANI) February 14, 2025
PMC Bank Saga
The series of events leads us into a flashback of the cataclysmic failure of another co-operative bank, Punjab & Maharashtra Cooperative Bank or PMC bank. PMC Bank, which itself was merged with Unity Small Finance Bank, went bust in 2022, ensuing the play similar scenes, that are being witnessed today.
And this is not the first, in 2023, when the country was recovering from pandemic, that had held its mobility for nearly two years, a grand total of 17 banks went belly up. A year before that, in 2022, a total of 12 banks shut shop.
The Peril Of Co-Operative Banks
In addition, between 2014 and 2023 about 60 banks, both urban an rural co-operative banks were asked to shutter down
Here, a co-operative bank is a bank which is run on a co-opertive basis, In this, the lenders are owned by their customers and follow the co-operative tenet of one person, one vote. And, in principle, these banks are supposed to function in a holistic principle of no profit, no loss.
Apart from the big case of PMC, which had Rs 11,600 crores in deposits and Rs 8,400 crores in advances, some of the other banks that have run into trouble include the likes of Guru Raghavendra Cooperative Bank and Maharashtra State Cooperative (MSC) Bank.
In the case of Maharashtra State Cooperative (MSC) Bank, the Enforcement Directorate filed two investigations over money laundering allegations, in connection to the bank.
In the case of Maharashtra State Cooperative (MSC) Bank, the Enforcement Directorate filed two investigations over money laundering allegations, in connection to the bank.
As according to a 2023 report from the Economic Times, as many as urban Co-operative banks, 1,502 in number, had 8.8 per cent gross NPA of their total advances of Rs 3.30 lakh crore.
The scheduled UCBs had 6.6 per cent gross Non-Performing Assets of their cumulative advances of Rs 1.52 lakh crore.
Reasons Behind Failure
Some of the Key Reasons behind such failure are attributed primarily to two factors, the dual control of cooperative banks.
The RBI control the banks in banking functions and the state government in management functions.
This could result in ambiguities in operations.
Lack of transparency and unreliable auditing is another factor, as audits conducted by state government officials are irregular and according to some are in a dearth of comprehensiveness.
Recently, RBI also imposed a fine on Nidhi Co-operative Bank for violating loan guidelines in August 2024.
In July of the same year, the central bank cancelled the license of Purvanchal Co-operative Bank.
These developments often lead to rightful question marks being raised on the reliability of such banks, RBI and authorities need to tighten their grip on the sector. And as they say, prevention is always better than cure.
The central government under PM Narendra Modi, formulated the Ministry of Cooperation in 2021.
