Reserve Bank of India (RBI) has placed restrictions on New India Co-operative Bank Limited, Mumbai, under Section 35A read with Section 56 of the Banking Regulation Act, 1949. These restrictions, effective February 13, 2025, significantly limit the bank’s operations to protect depositor interests and ensure proper management. The RBI’s directive prohibits the bank from granting or renewing loans, making investments, incurring new liabilities, or accepting fresh deposits without prior written approval. This action comes after the RBI determined that the bank’s affairs were being conducted in a manner detrimental to depositors.
The most immediate impact of the RBI’s directive is on depositors. Withdrawals from any deposit account are currently barred, except when a depositor also has an outstanding loan with the bank. In such cases, the deposit may be adjusted against the loan. This provision aims to mitigate the bank’s risk while also potentially impacting depositors who are also borrowers. The directive, however, allows for some operational flexibility. The bank can renew existing term deposits upon maturity, ensuring some continuity for depositors with longer-term investments. It can also cover essential operating expenses, including employee salaries, rent, taxes, and legal fees. Payments to the Deposit Insurance and Credit Guarantee Corporation (DICGC) are also permitted, safeguarding deposit insurance coverage.
The RBI directive also addresses the bank’s financial reporting and asset management. New India Co-operative Bank is required to provide a certified list of all outstanding deposits to the DICGC within 45 days of the directive’s effective date. This is in line with Section 18A of the DICGC Act, 1961, ensuring transparency and facilitating potential payouts in case of bank failure. The bank is permitted to set off loans against deposits under specific conditions, primarily where the loan agreement explicitly allows for such an arrangement. This measure is subject to several safeguards, including KYC compliance, notification to the depositor, and restrictions on setting off deposits subject to legal encumbrances. These conditions aim to balance the bank’s need to manage non-performing assets with the rights of depositors.
The RBI’s actions reflect its regulatory role in overseeing cooperative banks and maintaining financial stability. Section 35A of the Banking Regulation Act grants the RBI broad powers to issue directions to banks to prevent actions detrimental to depositors’ interests. While there isn’t a directly applicable judicial precedent dealing with restrictions under this specific section for a cooperative bank in similar circumstances, the principles of depositor protection and regulatory oversight are well-established. The Supreme Court, in various cases, has upheld the RBI’s authority to regulate banks and financial institutions, emphasizing the central bank’s role in maintaining the health of the financial system. The current restrictions on New India Co-operative Bank will remain in force for six months, during which time the RBI will review the bank’s performance and decide on further action. The bank is required to display the RBI order prominently on its premises and website and inform all depositors of the restrictions.
Also Read: RBI Supersedes Board of New India Co-op Bank for 12 Months
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RESERVE BANK OF INDIA
Directions under Section 35 A read with section 56 of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies) – New India Co-operative Bank Limited, Mumbai
It is hereby notified for information of the public that in exercise of powers vested in it under sub section (1) of Section 35 A of the Banking Regulation Act, 1949, read with Section 56 of the Banking Regulation Act, 1949, the Reserve Bank of India (RBI) vide Directive Ref. No. CO.DOS.SED.No.D-01/12-22-350/2024-2025 dated February 13, 2025, has issued certain Directions to New India Co-operative Bank Limited, Mumbai (“the bank”), whereby, as from the close of business on February 13, 2025, the bank shall not, without prior approval of RBI in writing, grant or renew any loans and advances, make any investment, incur any liability including borrowal of funds and acceptance of fresh deposits, disburse or agree to disburse any payment whether in discharge of its liabilities and obligations or otherwise, enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets except as notified in the RBI Direction dated February 13, 2025, a copy of which is displayed on the bank’s website / premises for perusal by interested members of the public. Considering the bank’s present liquidity position, the bank has been directed not to allow withdrawal of any amount from savings bank or current accounts or any other account of a depositor but is allowed to set off loans against deposits subject to the conditions stated in the above RBI Directions. The bank may incur expenditure in respect of certain essential items such as salaries of employees, rent, electricity bills, etc., as specified in the said Directions.
2. 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.
3. The eligible depositors would be entitled to receive deposit insurance claim amount of their deposits up to a monetary ceiling of ₹5,00,000/- (Rupees five lakh only) in the same capacity and in the same right, from the Deposit Insurance and Credit Guarantee Corporation (DICGC), as applicable under the provisions of the DICGC Act, 1961, based on submission of willingness by the depositors concerned and after due verification. The depositors may contact the bank officials for further information. Details may also be accessed on the DICGC website: www.dicgc.org.in.
4. The issue of the above Directions by the RBI should not per se be construed as cancellation of banking license by RBI. The bank will continue to undertake banking business subject to restrictions specified in the said Directions till its financial position 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.
5. These Directions shall remain in force for a period of six months from the close of business on February 13, 2025 and are subject to review.
(Puneet Pancholy)
Chief General Manager
Press Release: 2024-2025/2154
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RESERVE BANK OF INDIA
Executive Director
Directive No. CO.DOS.SED.No.D-01/12-22-350/2024-2025
February 13, 2025
In the matter of
New India Co-operative Bank Limited, Mumbai
Directions under section 35A read with section 56 of the Banking
Regulation Act, 1949 (As Applicable to Co-operative Societies)
The Reserve Bank of India, in exercise of its powers under sub-section (1) of section 35A read with section 56 of the Banking Regulation Act, 1949, on being satisfied that it is necessary in public interest and for preventing the affairs of New India Cooperative Bank Limited., Mumbai (“the bank”), being conducted in a manner detrimental to the interest of the depositors and for securing the proper management of the bank, hereby directs that the bank, from the close of business on February 13, 2025 (which shall be the effective date of this Directive) shall not, without prior approval in writing from the Reserve Bank of India, grant or renew any loans and advances, make any investment, incur any liability including borrowal of funds and acceptance of fresh deposits, disburse or agree to disburse any payment whether in discharge of its liabilities and obligations or otherwise, enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets except to the extent and in the manner provided hereunder:
i. For the present, no amount (whether from savings bank, current account, recurring deposit or any other deposit account by whatever name called) may be allowed to be withdrawn by a depositor provided that wherever such depositor is having liability to the bank in any manner, i.e., either as a borrower or surety, the amount may be adjusted to the relevant borrowal account/s;
ii. The bank may:
a. renew the existing term deposits on maturity in the same name and same capacity;
b. incur expenditure that may be required to be met by the bank in respect of the following items:
1. salaries of employees;
2. rent, rates and taxes;
3. electricity bills;
4. printing, stationery, postage, etc.;
5. legal expenses comprising stamp hduty/registration charges/ arbitration fees which are payable at rates stipulated in the statutes concerned or rules of Court/ Registrar of Cooperative Societies/ Debt Recovery Tribunal;
6. court fee in compliance with the court orders/under provisions of statutes; and
7. payment of fees to lawyers not exceeding 1,000/- (Rupees one thousand only) in each case.
c. pay premium payable to the Deposit Insurance and Credit Guarantee Corporation in accordance with the provisions of applicable law;
d. incur expenditure on any other item in so far as it is, in the opinion of the bank, necessary for carrying on the day-to-day administration of the bank provided that total expenditure on any item in the calendar month shall not exceed the average monthly expenditure on account of that item during the period of six months preceding the date of the Directive or, if no expenditure has been incurred on account of that item in the past, it should not exceed a sum of 1,000/- (Rupees one thousand only);
e. make investments in Government/SLR-approved securities;
f. accept contribution towards capital from the existing members of the bank, under advice to RBI on a monthly basis;
g. make payment in respect of gratuity/provident fund benefits to its retiring employees;
h. make payment in respect of leave encashment and superannuation benefits to retiring/retired employees with the approval of RBI;
iii. The bank shall not incur or extinguish any other liability unless specifically approved in writing by the Reserve Bank of India.
2. The bank shall, in compliance with the provisions of section 18A of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (as amended by the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021), furnish to the Deposit Insurance and Credit Guarantee Corporation (DICGC), a list showing the outstanding deposits of each of its depositor and certified to be correct by its Chief Executive Officer within a period of 45 days from the effective date of these directions.
3. The bank is allowed to set off loans against deposits, if the terms and conditions of the loan agreements with the borrower provide that the amount in his specific deposit account (by whatever name called) may be appropriated / adjusted by the bank towards his loan account. Such appropriation / adjustment to the extent of outstanding balance in loan account may be done subject to following conditions:
a. The accounts have to be KYC compliant as on the date of adjustment;
b. Deposits held by a third party including but not limited to guarantor(s)/sureties will not be permitted to be adjusted;
c. This option should be exercised under due notice to the depositor, normally in cases where further delay in setting off may result in the loan account becoming NPA. For setting off standard loans (being serviced regularly) and any divergence from the terms and conditions of loan agreement, prior written consent of the depositor-borrower would be necessary; and
d. he deposit or its set off should not be subject to any restrictions such as attachment order/ prohibitory order of a Court of law or statutory authority or other authority empowered under law, earnest money deposit, obligation of trust, third party lien under the provisions of Multi State Co-operative Societies Act, 2002 and Cooperative Societies Act enacted by the State, etc.
4. A copy of this Directive should be forwarded to each depositor by the bank and should also be displayed on the bank’s premises and the home page of the bank’s website.
5. The Reserve Bank of India further directs that New India Co-operative Bank Limited, Mumbai, shall submit to the Chief General Manager, Reserve Bank of India, Department of Supervision, Mumbai, such statements relating to its operations as may be prescribed by the Reserve Bank of India in this behalf.
6. These directions shall remain in force for a period of six months from the close of business on February 13, 2025 and subject to review by the Reserve Bank of India.
(S C Murmu)
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