New India Co-operative Bank Fraud: RBI’s Intervention and Its Impact on Depositors

Regulatory crackdown follows ₹122 crore fraud, leaving account holders in uncertainty

In a significant regulatory move, the Reserve Bank of India (RBI) has superseded the board of New India Co-operative Bank for a period of 6 months, effective from February 14, 2025. This decisive action comes in the wake of a ₹122 crore financial fraud orchestrated by the bank’s former General Manager, Hitesh Mehta, who has been apprehended by the Economic Offences Wing of the Mumbai Police. The RBI’s intervention aims to safeguard the interests of depositors and maintain the stability of the banking sector.

Unveiling the Fraud

The fraudulent activities came to light when internal audits revealed significant discrepancies in the bank’s financial statements. Hitesh Mehta, leveraging his position as General Manager, allegedly siphoned off ₹122 crore through unauthorized transactions and misappropriation of funds. The magnitude of the fraud prompted immediate action from both regulatory authorities and law enforcement agencies.

RBI’s Regulatory Measures

In response to the detected irregularities, the RBI has implemented several stringent measures:

• Board Supersession: The existing board has been dissolved, and an administrator has been appointed to oversee the bank’s operations for the next 12 months.

• Operational Restrictions: The bank is prohibited from granting or renewing any loans and advances without prior approval from the RBI. Additionally, it cannot make any investments, incur liabilities, or accept fresh deposits during this period.

• Withdrawal Limitations: Depositors are currently barred from withdrawing funds from their savings, current, or any other accounts. However, provisions have been made to allow the offsetting of loans against deposits under specific conditions outlined by the RBI.

These directives are designed to prevent further financial deterioration and to protect the interests of the depositors.

Impact on Account Holders and Depositors

The RBI’s crackdown has led to considerable concern among the bank’s clientele. Hundreds of anxious customers have gathered outside various branches, seeking clarity on the safety of their funds and the future of their banking relationships.

For depositors, the immediate implications include:

• Suspension of Withdrawals: Access to funds is currently restricted, causing inconvenience and financial strain for those relying on these deposits for daily expenses or business operations.

• Deposit Insurance Coverage: Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) guidelines, deposits up to ₹5 lakh are insured. Reports indicate that approximately 90% of the bank’s 1.3 lakh depositors fall within this insured bracket, ensuring that a majority will recover their full deposits. The process for claiming insurance requires depositors to submit their willingness, followed by due verification.

• Uncertainty for Larger Depositors: Individuals and entities with deposits exceeding ₹5 lakh face uncertainty regarding the recovery of amounts beyond the insured limit. The resolution of these claims will depend on the bank’s asset recovery and the administrator’s management strategies.

Legal Proceedings and Future Outlook

The arrest of Hitesh Mehta marks the beginning of a comprehensive legal process aimed at holding those responsible accountable and recovering the misappropriated funds. The administrator, appointed by the RBI, is tasked with stabilizing the bank’s operations, assessing its financial health, and formulating a revival or resolution plan.

For depositors, it is advisable to stay informed through official communications from the bank and the RBI. Engaging with customer service channels and attending informational sessions can provide clarity on the steps to claim insured deposits and the expected timelines for resolution.

In summary, the New India Co-operative Bank fraud has precipitated a series of regulatory and legal actions aimed at protecting depositors and maintaining financial stability. While insured depositors have a safety net, those with larger deposits must navigate the recovery process with patience and vigilance. The incident underscores the critical importance of robust internal controls within financial institutions and the need for continuous regulatory oversight to prevent such occurrences in the future.