Poor governance: RBI replaces New India Co-op Bank's board for 12 months
New Delhi, Feb 14, 2025
Customers queued outside New India Cooperative Bank's branches in Mumbai on Friday seeking answers on the abrupt shut down of certain key services
A day after imposing restrictions on Mumbai-based New India Co-operative Bank, the Reserve Bank of India (RBI) has superseded its Board of Directors for 12 months, citing poor governance standards, the central bank said in a statement on Friday.
“In exercise of the powers conferred under Section 36 AAA read with section 56 of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies), the Reserve Bank has today superseded the Board of Directors of New India Cooperative Bank Ltd, Mumbai, for a period of 12 months,” the statement issued by the RBI read.
RBI appoints ex-SBI manager to head bank
The RBI appointed Shreekant, a former chief general manager of the State Bank of India (SBI), as the administrator to manage the bank’s affairs. Additionally, a committee of advisors has been formed to assist him, comprising Ravindra Sapra (former general manager, SBI) and Abhijeet Deshmukh (chartered accountant).
RBI imposes curbs on New India Co-op Bank
The move follows sweeping restrictions imposed on the bank on Thursday, including a six-month freeze on withdrawals due to liquidity concerns. Depositors cannot access their savings, current, or other accounts, though the bank has been allowed to set off loans against deposits and cover essential expenses such as employee salaries, rent, and utility bills.
The RBI stated that the bank cannot grant or renew loans, make new investments, or accept fresh deposits without prior approval. It assured depositors that those eligible could claim up to Rs 5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Customers queue outside New India Co-op Bank
With 28 branches, primarily in Mumbai, the bank’s sudden restrictions have sparked panic among customers, many of whom depend on their accounts for daily expenses, bill payments, and loan EMIs.
Customers panic as RBI bans withdrawals from New India Co-operative Bank
The situation is reminiscent of the 2019 Punjab and Maharashtra Co-operative Bank (PMC) crisis, where financial irregularities led to business curbs and an eventual takeover by Centrum Financial Services. The RBI’s latest intervention aims to stabilise the bank while ensuring depositor interests are protected.
Decoded: Why RBI stopped New India Co-operative Bank's operations
The Reserve Bank of India (RBI) has imposed strict curbs on Mumbai-based New India Co-operative Bank Limited, barring it from issuing loans, accepting new deposits, or permitting withdrawals for a six-month period.
According to the RBI, these measures have been taken due to concerns over the bank’s financial stability and liquidity situation. The restrictions aim to safeguard depositors' interests and maintain overall financial security.
In a circular, the RBI said, “...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.”
Financial struggles of the bank
New India Co-operative Bank has been grappling with financial difficulties in recent years. Its annual report indicates a loss of Rs 22.78 crore for the financial year ending March 2024, following a previous year’s loss of Rs 30.75 crore.
Details of the RBI directive
Effective from the close of business on February 13, 2025, the bank is restricted from:
-Issuing or renewing loans and advances
-Making fresh investments
-Borrowing funds or accepting new deposits
-Disbursing payments to meet liabilities
-Selling, transferring, or disposing of assets without prior RBI approval
Moreover, depositors will be unable to withdraw funds from their accounts due to the bank’s liquidity crisis.
Customer concerns and reactions
The announcement has triggered anxiety among account holders, many of whom depend on the bank for routine financial transactions.
On February 14, several customers gathered outside the bank’s branches in Mumbai, demanding clarity on the situation and access to their funds. Many expressed distress over financial obligations such as loan repayments, rent, and daily expenses.
One customer, Seema Waghmare, told news agency ANI, “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.”
Will depositors get their money?
The RBI has clarified that while the bank faces financial stress, its licence remains intact, meaning it can still operate under restrictions. The central bank will continue monitoring the situation and decide further action accordingly.
Under RBI regulations, eligible depositors can receive up to Rs 5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC) if a claim is made, providing some relief.
Permitted transactions despite restrictions
Despite the imposed limitations, the RBI has allowed the bank to:
-Adjust depositors’ funds against existing loans, subject to conditions
-Pay necessary expenses such as employee salaries, rent, and utility bills
However, any new loans, advances, or investments will require prior RBI approval.
The restrictions will remain in place for six months, during which the RBI will evaluate the bank’s financial health and determine the next steps. If improvements are observed, some limitations may be eased; otherwise, further measures could be implemented.
[The Business Standard]
