The Reserve Bank of India (RBI) may allow depositors of the troubled New India Co-operative Bank to withdraw funds in case of personal or medical emergencies, according to a report from news agency Reuters. Sources cited in the report said that the RBI, along with the bank’s administrator, would require depositors to provide proof of their emergency before granting withdrawals.
The withdrawals will be permitted up to the deposit insurance limit of Rs 5 lakh, both sources added. However, they did not want to be identified as they are not authorised to speak to the media. Under existing rules, deposits up to Rs 5 lakh are insured in case a bank fails, and the insured amount is supposed to be paid within 90 days.
New India Co-op Bank has been struggling with financial losses for the last two financial years. According to its annual report, the bank posted a loss of Rs 22.78 crore in the 2024 financial year and a loss of Rs 30.75 crore in the 2023 financial year.
As of March 31, 2024, the bank had total outstanding deposits of Rs 2,436 crore and advances of Rs 1,175 crore.
Last week, the RBI took strict action against the bank by suspending deposit withdrawals for six months, stopping the issuance of new loans, and appointing an administrator. The central bank said these measures were necessary due to supervisory concerns and the bank’s weak liquidity position. It remains unclear whether the bank will be able to resume normal operations after the six-month restriction period. Both sources told Reuters that there is no clarity on whether the bank will be revived or if further action will be taken.
The RBI has previously taken action against co-operative banks where management decisions went against the interest of depositors. In 2019, Punjab and Maharashtra Co-operative Bank was placed under similar restrictions after financial irregularities were found.
The bank was eventually merged with Unity Small Finance Bank in 2022.The deposit insurance coverage was raised to Rs 5 lakh in 2020 to provide greater protection for depositors. This week, an official said that another increase in deposit insurance coverage is being considered.
Over the weekend, depositors of New India Co-op Bank gathered in Mumbai to discuss legal options. Many depositors are worried about their savings being locked up, as they rely on the bank for their financial needs.
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