On February 14, 2025, the Reserve Bank of India (RBI) announced a critical intervention in the affairs of New India Cooperative Bank Ltd., Mumbai. This blog post analyses RBI’s intervention at New India Cooperative Bank, covering supersession of its board, appointment of an administrator, and imposition of strict operational restrictions.
RBI’s Bold Move: Appointment of an Administrator
Exercising its statutory powers under Section 36AAA read with Section 56 of the Banking Regulation Act, 1949 (as applicable to co-operative societies), the RBI has superseded the bank’s Board of Directors for a period of 12 months. This decision comes as a response to significant concerns over governance standards and material developments at the bank.
As part of the intervention, the RBI has appointed Shri Shreekant, the former Chief General Manager of State Bank of India, to act as the Administrator. In order to support his efforts in managing the bank’s affairs during this period, a Committee of Advisors has also been formed. The committee comprises Shri Ravindra Sapra, formerly a General Manager at SBI, and Shri Abhijeet Deshmukh, a Chartered Accountant. These appointments aim to bring enhanced oversight and stability while resolving issues affecting the bank’s operations.
Stringent Business Restrictions Imposed on the Bank
Earlier, thru press release dated February 13, 2025, the RBI issued directions under Section 35 A read with Section 56 of the Banking Regulation Act, 1949 (as applicable to co-operative societies). These directions impose several restrictions on New India Cooperative Bank’s day-to-day operations. The RBI has laid down clear parameters regarding what the bank can and cannot do without its prior written approval.
Key Restrictions Enforced:
These measures have been enforced in response to “supervisory concerns” arising from ongoing material developments in the bank. According to various news reports, these actions by the RBI are intended to secure the interests of depositors and ensure the overall financial stability of the institution.
i) No New Loans or Renewals: As from the close of business on February 13, 2025, the bank is prohibited from granting or renewing any loans and advances.
ii) Investment and Liability Limitations: The bank is not allowed to make any investments or incur new liabilities—including borrowing funds or accepting fresh deposits.
iii) Restricted Disbursements and Asset Sales: The bank cannot disburse payments (either in discharge of its liabilities and obligations or otherwise) or sell, transfer, or dispose of any of its properties or assets except as specifically permitted in the RBI directive.
iv) Withdrawal Limitations: Owing to the bank’s current liquidity position, it has been directed not to allow any withdrawals from savings, current, or any other types of accounts held by depositors. Instead, it is allowed to set off loans against deposits, subject to conditions outlined in the RBI directions.
Protections for Depositors
Given the gravity of the RBI’s intervention, questions naturally arise regarding the safety of depositors’ funds. The RBI has clarified that these restrictions do not amount to the cancellation of the bank’s license. Consequently, while the bank’s ability to conduct full-scale operations is curtailed, it will continue to undertake banking business under the specified restrictions until its financial position improves.
A critical aspect of the directive is the protection extended to depositors. Eligible depositors are entailed to receive a deposit insurance claim for amounts up to ₹5,00,000. This insurance protection is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) under the provisions of the DICGC Act, 1961. Depositors are advised to contact bank officials or visit the DICGC website for further details and verification procedures.
The Rationale Behind RBI’s Intervention
There has been mounting concern regarding the bank’s liquidity and governance parameters. Recent search results and media reports note that the bank has endured financial struggles in recent fiscal years, recording losses in consecutive years and witnessing a contraction in its advances. In contrast, a slight increase in deposits has been observed, which adds to the liquidity challenges.
Historical precedents, such as the RBI’s past actions with other co-operative banks facing similar issues, support the notion that these measures, while stringent, are necessary to safeguard the broader financial ecosystem. By intervening at an early stage, the RBI aims to prevent a further deterioration of the bank’s standing, which could eventually impact depositors and potentially lead to a wider crisis in the cooperative banking segment.
Moving Forward: Monitoring and Future Directions
The RBI has made it clear that these restrictions are temporary and have been put in place for an initial period of six months from the close of business on February 13, 2025. However, these measures are subject to periodic review, and any modifications will be determined based on the bank’s financial recovery and improvements in governance practices.
In the interim, the newly appointed Administrator and his Committee of Advisors will be tasked with steering the bank through this challenging period. The focus remains on re-establishing financial discipline, improving supervisory compliance, and eventually restoring the bank’s capacity to operate normally.
Conclusion
The RBI’s decisive steps, superseding the Board of Directors, appointing a seasoned Administrator, and enforcing stringent operational restrictions, underscore its commitment to maintaining financial discipline and protecting depositors’ interests. This intervention at New India Cooperative Bank is emblematic of the proactive regulatory stance that seeks to address governance lapses and liquidity issues before they escalate into larger systemic risks.
As the situation unfolds, both the bank’s management and depositors are urged to remain informed and exercise patience while the RBI monitors and adjusts its directives according to evolving circumstances.