The saying “The more things change, the more they stay the same” by French writer Jean-Baptiste Alphonse Karr seems particularly fitting for India’s urban co-operative bank (UCB) sector, given the recurring instances of fraud and financial troubles that have plagued many players in the past 25 years. While not all UCBs should be painted with the same brush, the misdeeds of a few tarnish the reputation of the entire sector.
Recently, a scam of approximately ₹122 crore was uncovered at Mumbai-based New India Cooperative Bank (NICB), posing a significant challenge for the Reserve Bank of India (RBI) to address. To assist customers with savings exceeding the deposit insurance limit of ₹5 lakh, the RBI may need to intervene similar to the rescue operation conducted for Punjab and Maharashtra Cooperative (PMC) Bank in 2021, where a new small finance bank, Unity SFB, was established to take over PMC Bank.
The RBI could follow a similar rescue model for NICB or explore alternative solutions such as providing temporary liquidity support through the National Urban Co-operative Finance and Development Corporation. While small depositors at NICB are set to receive their funds by mid-May, larger depositors face a longer wait for reimbursement.
The revelation that ₹122 crore was siphoned off from two Mumbai branches of NICB over six years underscores a significant lack of oversight, both internally and externally. The RBI imposed strict directions on NICB following a surprise inspection that revealed irregularities, such as cash shortages. The bank’s board was superseded, and an administrator was appointed.
Satish K Marathe, Director of the RBI’s Central Board, emphasized the need to address the issue of dynastic control in UCBs to safeguard depositors’ interests. He highlighted the importance of vigilance from staff, management, auditors, and the board to prevent internal lapses and wrongdoings.
Jyotindra Mehta, Director of the National Federation of Urban Cooperative Banks and Credit Societies Ltd (NAFCUB), expressed the organization’s interest in formulating a revival plan for NICB but lacked financial information about the bank’s status. NAFCUB aims to support the urban cooperative credit movement and uphold the sector’s interests.
As of March 2024, NICB reported net losses in the past two fiscal years, with deposits and advances totaling ₹2,436 crore and ₹1,175 crore, respectively. The bank’s non-performing assets and capital ratios stood at 7.96% and 9.06%, respectively.
The 2020 amendment to the Banking Regulation (BR) Act empowers the RBI to address misconduct in UCBs effectively. Early intervention, based on internal or external alerts, can help preserve depositors’ trust. The need for stringent oversight is paramount, especially in institutions like NICB, founded on socialist principles to serve the community.
NICB depositors are hopeful that the RBI will act decisively in their interest and prevent further financial distress in the UCB sector.
