In the 1990s, Virendra Kumar Joping’s father, a small-time carpenter, came to Pune from Rajasthan to earn a living. Over the years, he saved his hard-earned money by opening a fixed deposit in Rupee Co-operative Bank.
Rupee Co-operative Bank was among the trusted names in Pune. Little did the Joping family know that after a few years, the bank would shut down, leaving the fate of their life savings uncertain. Although Kumar is the sole nominee, he has been unable to withdraw about Rs 19 lakh of Joping’s deposits.
The Reserve Bank of India revoked the working permit issued to the bank on August 10 because the lender did not have adequate capital and earning prospects.
Like many others, Joping was lured by the promise of higher interest rates offered by the co-operative bank. It promised at least 100 basis points more than what commercial banks offered. With the family’s entire savings stuck, Joping was forced to take an additional loan to make ends meet.
“I was under debt all through the Covid lockdown; the bulk of my money was stuck at the bank and I had to marry my sister off. I had no choice but to take a loan,” Joping told Moneycontrol. “All I keep wondering is why do I have to pay a price for someone else’s mistake?”
Also read: Banking Central | The wait for own money
Not a lone story
There are many like Joping. Pune-based 60-year-old Sanjay Talgaokar faced a similar situation. Talgaokar’s father, a government servant, had savings of over Rs 50 lakh with Rupee Co-operative Bank. His father had heart problems and had to be hospitalised often.
“For my father’s hospitalisation, I had to take a loan of around Rs 5 lakh. This was only because his hard-earned money, which he saved for his retirement, was stuck in the bank for no fault of his,” Talgaokar said. “I had to bear a loan liability even though my father had been responsible enough to save for his retirement.”
Joping and Talgaokar are among aggrieved depositors struggling to get their deposits back. While the Deposit Insurance and Credit Guarantee Corporation (DICGC) cover has helped to cover the majority of depositors, others with deposits above the Rs 5 lakh threshold are still waiting. Typically, the timeframe to get back deposits is long and the wait is uncertain.
As per the data submitted by the bank, more than 99 percent of the depositors are entitled to receive the full amount of their deposits from DICGC, said the RBI.
As of March 31, 2020, the bank held deposits worth Rs 1,289.72 crore, according to its website. The top 100 wilful defaulters owed the bank around Rs 275 crore. Of this, the top six wilful defaulters, including Mhaskar Group and the Raheja Group, owed the bank over Rs 116 crore.
How did the bank fail?
The end didn’t come suddenly. The writing was on the wall. Rupee Co-operative Bank had faced RBI penalties many times in the past.
Trouble at the Pune-based lender started in 2001-2002 when the RBI detected large-scale financial irregularities, a high level of non-performing assets and loss resulting in erosion in net worth and erosion in deposits following a whistle-blower alert.
From 2003 to 2008, the bank’s business declined as the credit-deposit (CD) ratio—how much a bank lends from the deposits it mobilised—declined from 80 percent to 55 percent. Accumulated losses increased to Rs 481 crore and the RBI imposed lending restrictions on the bank.
When the bank’s CD ratio continued to decline and losses mounted, the RBI imposed withdrawal limits on the bank in February 2013. Depositors were allowed to withdraw up to Rs 1,000 of the total balance held in every savings bank, current account or any other deposit account.
These restrictions were extended from time to time and the withdrawal limit was gradually increased.
Rescue attempts fail
While under restrictions, the bank received merger proposals from Maharashtra State Co-operative Bank, TJSB Sahakari Bank, Mehsana Urban Co-operative Bank and Saraswat Co-operative Bank.
On February 25, 2022, the RBI approved an in-principle merger proposal of Saraswat Co-operative Bank with certain conditions. However, a day later, the DICGC sanctioned claims for 64,024 depositors amounting to Rs 700.44 crore.
The merger hit a roadblock after Saraswat Co-operative Bank raised queries about its viability and the loss of its business following deposit claims settled by the DICGC, according to a report in the Indian Express.
Meanwhile, the depositors continued to pin their hopes on a bailout.
At least four depositors of Rupee Co-operative Bank who spoke to Moneycontrol said they were hopeful that the bank would be merged with another lender.
They also hoped that the RBI would step in to ensure its business would continue and depositors’ interests would be protected. Hence, despite the restrictions, they continued to hold lumpy deposits with the bank.
“In case of other failed banks like Lakshmi Vilas Bank, Yes Bank, Punjab and Maharashtra Cooperative Bank, the RBI took timely action by ensuring that the merger process was initiated quickly and the bank was revived. That was not the case with Rupee Co-operative Bank,” said Sunil Gole, a member of Rupee Bank Depositors Forum.
“Why are there different rules for different banks? Yes, our bank was relatively smaller, but it was ultimately the depositors’ hard-earned money. Depositors clearly feel cheated.”
The forum met on August 12 in Pune to decide on a course of action for the depositors and whether or not to initiate legal action against the RBI’s decision to cancel the bank’s licence.
However, taking the legal route is unlikely to be easy, said experts. Aggrieved depositors will have to make a case of arbitrary action by the RBI.
“For such a writ petition to be admitted, the petitioner(s) would have to make out a prima facie case that the RBI’s directions are illegal, arbitrary, irrational and/or contrary to public interest or that there is procedural impropriety (such as a fair hearing not being provided to the bank in accordance with principles of natural justice) in the decision-making process,” said Bhavya Mohan, a partner at Argus Partners.
Mohan added that the courts will generally not interfere when the RBI has cancelled a bank’s licence in a reasoned manner by following due process and substantive regulations.
Even if the petition is admitted, it is unlikely that the court will grant a stay order on the central bank’s actions, said legal experts.
“It has to be noted that on previous such events where the writ of mandamus was filed by the depositors against the RBI, the court has taken a view that it has no jurisdiction to interfere in the working of RBI, especially when the actions taken by them are well within the powers entrusted to them under the applicable law,” said Siddharth Srivastava, a partner at Khaitan & Co.
This means that even if the legal route is adopted, depositors will have to wait for a long time to get their money back.
“We are at sea about which banks to trust now,” said 63-year-old Pune-based depositor Kedar Sapre, who with his brother Mandar, has savings of about Rs 40 lakh stuck at the lender. “Medical emergencies are never forewarned and with a large amount of our savings stuck, my retirement planning has been disturbed.”
Rot runs deep
The crisis surrounding India’s cooperative banks is not accidental. These entities have long struggled with a clutch of problems, including dual regulation, local political intervention, bad governance and fraud.
While larger cooperative banks are governed by the RBI, the smaller ones—primary rural cooperative banks—continue to be under the control of state governments. To be sure, even the big ones are said to be heavily influenced by local politicians.
However, the regulations have evolved. In February 2021, the RBI constituted an expert panel led by former deputy governor NS Vishwanathan to examine issues facing urban cooperative banks.
The committee recommended a four-tier regulatory framework for urban cooperative banks based on the size of deposits and their area of operations, the RBI said on July 20.
Also read: RBI panel proposes 4-tier regulatory framework for urban cooperative banks
The RBI has tightened the scrutiny of erring cooperative banks. In the past few years, it has clamped down on several erring cooperative banks. A total of 27 small cooperative banks were liquidated in the past five years, while 42 cooperative banks were closed on account of mergers during this period, according to a Parliament paper.
However, despite the regulator’s strict actions, cooperative banks continue to be susceptible to fraud and bad governance, putting thousands of depositors’ hard-earned money at risk.
(This is the fourth story in a Moneycontrol series on ‘India’s cooperative mess' that highlights the plight of retail depositors whose hard-earned savings are stuck at failed cooperative banks across the country. You can read the previous stories here, here and here.)