On February 14, the Reserve Bank of India (RBI) imposed restrictions on Mumbai-based New India Cooperative Bank Ltd over supervisory concerns. Depositors were barred from withdrawing funds from the bank as the lender faced liquidity issues.
This is not the first time a co-operative bank has run into RBI' blacklist. On September 23, 2019, RBI had placed similar restrictions on Punjab and Maharashtra Co-operative Bank (PMC) after it came to light that PMC Bank’s top management was involved in an alleged loan fraud case. As a result, nearly 17 lakh depositors were barred from withdrawing money from the bank.
This leads us to a pertinent question: how safe are our deposits in co-operative banks? According to Chirag Chauhan, a chartered accountant (CA) by profession, parking your hard-earned money in a co-operative bank is a poor financial decision.
"Money in co-operative banks is not safe and secure. Only individuals with limited knowledge tend to park their funds in co-operative banks, sometimes in exchange for a slightly higher interest rate of 0.50%. However, this small benefit is not worth the risk," he shared on X.
"Your money is safe only in public sector banks (PSUs), even during crises. For example, Punjab National Bank (PNB) did not default on deposits during tough times, as PSU banks are backed by the government. The Reserve Bank of India (RBI) should implement stricter regulations for co-operative banks to protect depositors from suffering losses," he added, in reference to the restrictions imposed on PNB in 2018 after the lender was implicated in a significant financial fraud involving fraudulent Letters of Undertaking (LoUs) amounting to approximately $1.4 billion. This scam, orchestrated by jeweler Nirav Modi and his associates, led to substantial scrutiny of PNB's internal controls and risk management practices.