Cooperative bank crisis: Has anything changed since PMC’s plight in 2019?-OxBig News Network

What happened at New India Co-op?

On 13 February, RBI placed the lender under restrictions and directed the bank to not allow withdrawals from savings, current or any other deposit accounts. While directing depositors to bank officials and to India’s banking deposit insurance provider on how to claim their insurance payments against deposits of up to ₹5 lakh, RBI said the restrictions should not be seen as a cancellation of the bank’s licence. A day later, uncertain over the future of their money, depositors rushed to branches of the bank in Mumbai. RBI also took control of the bank’s board and placed a retired banker to manage the operations.

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What do we know about the bank?

It started in 1968 as the Bombay Labour Cooperative Bank—founded by former minister George Fernandes, and Ranjit Bhanu, whom the bank’s website refers to as a “noted criminal lawyer, trade unionist and a member of legislative assembly”. The bank held deposits of ₹2,436.4 crore as on 31 March 2024 versus ₹2,405.9 crore a year earlier, says its annual report. About 67.2% were fixed deposits, 27.9% savings deposits, and the rest current accounts. Loans fell 11.7% on-year to ₹1,174 crore. Capital adequacy was 9.1% in FY24 against the required 10%. It has not met the minimum level for two fiscals now.

What is the cause of this disruption?

Hindustan Times reported that the police arrested 57-year-old Hitesh Pravinchand Mehta, who worked as general manager-accounts, for allegedly siphoning money on the pretext of transferring cash between the Prabhadevi and Goregaon branches. Last Wednesday, a team of RBI officials visited the bank headquarters and found that ₹112 crore in cash was missing.

Has RBI been watching cooperative banks?

It has stepped up the scrutiny of cooperative banks over the past few years. Enforcement actions against such lenders have risen from nine in FY20 to 43 in FY21, 145 in FY22, 176 in FY23, and to 215 in FY24, showed RBI data. RBI categorizes urban cooperative banks under four tiers, based on the size of deposits. At the end of FY24, there were 1,472 urban cooperative banks, with the number rising in the 1990s under a “liberal licensing policy”. The sector has also seen consolidation with 156 mergers since FY05.

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Has anything changed since 2019 PMC crisis?

The Punjab and Maharashtra Cooperative Bank was on the brink of a collapse due to loan irregularities when RBI seized it in September 2019. It was taken over by Centrum Financial Services and fintech BharatPe in 2022. In 2020, the government had amended the Banking Regulation Act, giving RBI more powers over such lenders. Urban cooperative banks are regulated and supervised by the RBI. But state co-operative and district central co-operative banks are regulated by RBI and supervised by Nabard.