RBI supersedes New India Co-op Bank board after imposing biz restrictions

Alleged misappropriation of funds behind curbs

The Reserve Bank of India (RBI) on Friday superseded the board of the Mumbai-based New India Cooperative Bank for 12 months and appointed Shreekant, former chief general manager of State Bank of India (SBI), as administrator to oversee the bank’s affairs during this period.

 

Additionally, the RBI has appointed a ‘Committee of Advisors’ to assist the administrator. The committee comprises Ravindra Sapra, former general manager at SBI, and chartered accountant Abhijeet Deshmukh.

 

The move comes a day after the RBI prohibited the bank from issuing new loans and suspended deposit withdrawals for six months, starting February 13. The central bank cited supervisory concerns arising from recent material developments, saying the restrictions were aimed at protecting depositor interests.

 

 

Sources familiar with the matter said the RBI’s intervention was triggered by allegations of fund misappropriation by some bank staffers.

 

A complaint was filed by the bank’s chief compliance officer with the Economic Offences Wing (EOW) of the Mumbai Police on Thursday, alleging misappropriation of funds. The action followed a spot inspection by the RBI.

 

The sources indicated that the administrator has been tasked with assessing the situation swiftly and restoring normal banking operations as soon as possible. “The aim is to try and revive the bank at the earliest,” said a source aware of the developments.

 

On Friday, an RBI team was engaged in discussions with senior bank executives at its heavily secured headquarters, as observed by Business Standard during a visit to the bank’s offices in Prabhadevi, South Mumbai. A small police contingent was also stationed at the bank’s headquarters to prevent any untoward incident. 

 

At the bank’s branches, customers expressed concern over their savings, leading to a sense of panic. However, the sources said that approximately 90 per cent of the bank’s 130,000 depositors were fully insured under deposit insurance schemes.

 

As of March 2024, the bank’s total deposits stood at ₹2,436.37 crore, with savings deposits accounting for 27.95 per cent, current account deposits making up 4.23 per cent, and term deposits constituting 67.82 per cent of the total.

 

Despite the restrictions, the RBI has permitted the bank to incur expenditure for essential items, such as employee salaries, rent, and electricity bills.

 

The central bank clarified that the restrictions should not be interpreted as the cancellation of the bank’s licence. “The bank will continue to undertake banking business subject to restrictions specified till its financial position improves. The RBI continues to monitor the position of the bank and will take necessary actions including modifications of the directions, as warranted, depending upon circumstances and in the interest of the depositors,” the central bank said.

 

The cooperative bank posted a net loss of ₹22.77 crore for the financial year ended March 2024, though this was an improvement from the previous year, when losses stood at ₹30.74 crore.

 

According to the bank’s FY24 annual report, its capital adequacy ratio was 9.06 per cent as of March 31, 2024, below the minimum requirement of 10 per cent as stipulated by the RBI.

 

The bank’s advances shrunk by 11.66 per cent year-on-year, falling to ₹1,174.84 crore at the end of March 2024 from ₹1,329.88 crore a year earlier.

 

India’s cooperative banking sector comprises urban cooperative banks (UCBs) and rural credit cooperatives (RCCs). As of the latest count, there were 1,472 UCBs and 107,961 RCCs in the country.

 

While the number of UCBs surged in the 1990s due to a liberal licensing policy, nearly a third of newly licensed banks became financially unsound over time. In response, the RBI launched a consolidation drive in 2004-05, which included merging unviable UCBs with stronger counterparts, closing non-viable entities, and halting new licences. As a result, the number of UCBs declined from 1,926 to 1,472 over the past two decades.

 

Since FY05, the sector has witnessed 156 mergers, including six in FY24 — three in Maharashtra, two in Telangana, and one in Gujarat.