New India Co-op Bank hit by RBI curbs: What happens to depositors’ money? How long will it last?

The Reserve Bank of India (RBI) on Thursday imposed several restrictions on Mumbai-based New India Co-operative Bank Limited due to supervisory concerns. The measures, effective from the close of business on February 13, 2025, have triggered concerns among the depositors.

What are the restrictions?

As per the RBI directive under Section 35A read with Section 56 of the Banking Regulation Act, 1949, the bank cannot:

• Grant or renew any loans or advances.
• Make new investments or borrow funds.
• Accept fresh deposits.
• Disburse payments, except in specific cases permitted by RBI.
• Sell or transfer any properties or assets.

The RBI has further directed the bank not to allow withdrawals from savings or current accounts. However, customers can set off loans against deposits, subject to conditions specified in the RBI’s directions. The bank can continue making essential payments, including employee salaries, rent, and electricity bills.

Why has RBI taken this step?

The restrictions stem from what the RBI termed "recent material developments" in the bank that raised supervisory concerns. The banking regulator said it has taken the action to protect the interests of the depositors.

“These directions are necessitated due to supervisory concerns emanating from the recent material developments in the bank, and to protect the interest of depositors of the bank,” the central bank said.

What happens to depositors’ money?

In a banner put up outside a branch, the bank said, "Dear Depositors, the RBI imposition on the bank is in the interest of the depositors. Your deposit up to Rs.5,00,000/- with us is insured with DICGC of India, is safe and is expected to be paid by them in around 90 days."

"Requesting your patience till then. We would like to reassure you that your deposit with us continues to be safe and secure. We appreciate your understanding and cooperation in this matter."

Is this a bank closure?

No. RBI has clarified that these restrictions do not amount to a cancellation of the bank’s license. New India Co-op Bank will continue to operate under these restrictions until its financial health improves.

“The RBI continues to monitor the position of the bank and will take necessary actions including modifications of these Directions, as warranted, depending upon circumstances and in the interest of the depositors,” the regulator said.

How long will these restrictions last?

The RBI’s directive will remain in force for six months from February 13, 2025, and will be reviewed periodically.