Depositors of New India Co-operative Bank were seen queuing up outside its Mumbai branch to withdraw funds from their deposit accounts after the Reserve Bank of India (RBI) superseded the bank’s board and barred it from allowing customers to withdraw funds from their deposit accounts, offering new loans, deposits, and making investments.

The RBI has appointed former SBI CGM Shreekant as the bank’s administrator and formed a committee of advisors to assist the administrator. Eligible depositors can get funds of up to ₹5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC), a RBI subsidiary. The move sparked panic, as depositors of the lender rushed to withdraw their funds.

What prompted the RBI action

According to sources, after a spot inspection by the RBI, the bank’s chief compliance officer filed a complaint with the Economic Offences Wing of Mumbai police alleging misappropriation of funds by some staff.

The RBI, subsequently, imposed restrictions on the bank to protect depositors’ interest. The Administrator has been tasked with assessing the financial position of the bank quickly, and restoring normal banking operations at the earliest.

More than 90 per cent of overall deposits are covered under the DICGC, sources say. The bank had reportedly posted a loss of ₹22.78 crores for FY24 and ₹30.75 crore for FY23. Its advances stood at ₹1,175 crore, and deposits at ₹2,436 crore as of March end 2024.

Flashback from past

The scenes witnessed outside the bank’s branch are reminiscent of the scenario that occurred after the RBI had overtaken the board of Punjab and Maharashtra Co-operative Bank (PMC). PMC was later merged with Unity Small Finance Bank.

“We can understand that the concerned officials of RBI must have taken this extreme step only after careful inspection...However, this restriction on withdrawal of deposits for the next 6 months appears to be very harsh and is bound to cause immense hardships to thousands of NICB depositors, many of whom, you will appreciate, are senior citizens and pensioners without any other source of income,” said Shirish Deshpande, Chairman at Mumbai Grahak Panchayat.

“We request you to kindly arrange for the meeting of our delegation with the concerned RBI officials to first understand this issue in its entirety, on the basis of which, we would be able to make the representation as provided under section 35A (2) (of Banking Regulation Act) for either modification or cancellation of these directions,” he said. To be sure, the regulator has clarified that action against the co-operative Bank should not be seen as cancellation of banking license.