New India Cooperative Bank in Crisis: Depositors' Funds at Risk

India’s small banks are increasingly getting caught in financial scandals, putting millions of depositors at risk. The latest case involves New India Cooperative Bank, which has been embroiled in a massive fraud. Mumbai police have filed a case against Hitesh Mehta, the bank’s former General Manager and Head of Accounts, for allegedly embezzling ₹122 crore.

The fraud took place at the Prabhadevi and Goregaon branches, where Mehta and his associates siphoned off funds. In response, the Reserve Bank of India (RBI) took strict action by suspending the bank’s board of directors and imposing restrictions on deposits and withdrawals. Additionally, the RBI has barred the bank from issuing new loans.

Depositors in Confusion, RBI Assures Protection

Many depositors, who trusted the bank with their savings, now face uncertainty as they cannot withdraw their funds. According to Indian media reports, customers are distressed over their blocked deposits. However, the RBI has allowed withdrawals for essential expenses like salaries, rent, and utility bills.

To calm depositors' concerns, the RBI has promised continuous monitoring of the bank’s financial health. It also assured that eligible depositors can claim up to ₹5 lakh in deposit insurance from the Deposit Insurance and Credit Guarantee Corporation (DICGC). As of March 2024, the bank held total deposits worth ₹2,436 crore.

The restrictions will take effect from February 13, 2025, and will initially remain for six months. If the bank fails to improve its financial condition, stricter measures may follow.