The Reserve Bank of India (RBI) has imposed strict restrictions on New India Co-operative Bank Limited, Mumbai, from advancing or renewing loans, taking new deposits, or making investments on supervisory grounds. RBI informed that these restrictions have been put in place to protect the interest of depositors because of certain material developments that have taken place in the bank recently.
The RBI, exercising its powers under Section 35 A(1) of the Banking Regulation Act, 1949, and Section 56 of the Banking Regulation Act, issued a directive on February 13, 2025. In accordance with the direction, the bank will not be able to, without obtaining prior permission of the RBI, incur any liability, make payments, make settlements, or sell or otherwise deal with any of its properties or assets.
No Withdrawals Allowed, Loans Can Be Set Off Against Deposits
The RBI order states that, in view of the liquidity status of the bank, the depositors are not allowed to withdraw an amount of money from their current, savings, or other accounts. The bank, however, is at liberty to set off the deposits against advances which are, at the same time, subject to some conditions mentioned in the RBI order. Expenditure essential for running the affairs of the bank like staff salary, rent, and electricity bills shall be allowed on RBI guidance.
For customers, this means a complete lock-up of their deposited funds unless they have outstanding loans against them, which are allowed to be set off against their deposits. The bank will provide customers in the coming days with information on the particular process and terms of loan offsets.
Deposit Insurance Available for Eligible Depositors
In an attempt to mitigate the shock on customers, the RBI clarified that the eligible depositors would be paid insurance claims up to Rs 5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC) under the DICGC Act, 1961. The depositors need to indicate their intent for the claim and undergo the necessary verification procedure.
This step provides a buffer to small depositors so that they are not left with nothing due to the bank being unstable. But larger depositors may need to wait until there is more regulatory action before they are able to take out their money over the insured limit.
Banking License Is Not Revoked, Restrictions for Six Months
The RBI made it clear that these restrictions do not imply the cancellation of the license of the bank. The bank will continue to function under the imposed restrictions until its financial position is improved. RBI has promised the public that it will closely monitor the situation and take necessary action in the interest of depositors.
These limitations will remain in place for six months from the close of business on February 13, 2025, and will be examined as and when necessary. Depositors are requested to monitor RBI and official bank announcements for current updates. In the meantime, claimants who are entitled to deposit insurance are requested to make early claims so that they receive their insured amount without delay.
