The Reserve Bank of India (RBI) has implemented stringent regulations on New India Co-operative Bank over supervisory concerns. The central bank has decreed that the co-operative bank is prohibited from issuing or renewing loans, accepting new deposits, making investments, releasing payments for its obligations, or selling any assets.
Additionally, the central bank has decreed that depositors are unable to withdraw funds due to liquidity challenges faced by the bank. The measures came into effect at the close of business on Thursday and will be in place for six months, pending a future assessment by the central bank.
As a result of the bank's liquidity challenges, the RBI has mandated a halt on withdrawals from savings, current, and other account types held by depositors.
"...from the close of business on February 13, 2025, the bank shall not, without prior approval of RBI in writing, grant or renew any loans and advances, make any investment, incur any liability including borrowal of funds and acceptance of fresh deposits, disburse or agree to disburse any payment whether in discharge of its liabilities and obligations or otherwise, enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets," said RBI in a circular.
Following the orders, customers gathered outside New India Co-operative Bank in Mumbai on February 14. The restrictions have caused considerable concern among the bank's customers, who are anxious about meeting their immediate financial obligations. One customer has already expressed their frustration over the unforeseen circumstances.
One of the customers complained over the unexpected situation. "We deposited money just yesterday, but they did not say anything. They should have told us that this was going to happen. Now they are saying we’ll get our money within three months. We have EMIs to pay, and no idea how we’ll manage that," Seema Waghmare told news agency ANI.
Similar sentiments were shared by many others who are grappling with the challenges brought about by the sudden imposition of restrictions by the bank.
What should depositors note
The RBI has deemed the restrictions imperative in light of recent developments impacting the bank.
These directions do not constitute a revocation of the banking license by the RBI. The bank will continue to conduct banking operations within the confines outlined in the directions until its financial situation improves.
The objective of this measure is to safeguard the interests of depositors and maintain financial stability. The central bank has expressed its intention to evaluate the situation and make determinations on additional steps.
In accordance with RBI directives, the bank has been granted permission to offset loans against existing deposits, subject to specified conditions, despite stringent withdrawal regulations. The bank is also authorized to cover necessary expenses such as employee salaries, rent, and utility bills.
Moreover, as per the RBI's instructions, effective from the end of business on February 13, 2025, the bank is prohibited from issuing or renewing loans or advances, undertaking new investments, or accepting fresh deposits without prior RBI approval.
In the event of a deposit insurance claim, eligible depositors are entitled to receive up to ₹5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC). This measure is designed to safeguard depositors and mitigate financial repercussions during this period of uncertainty.