The Reserve Bank of India (RBI) has, in the last two years, taken stricter action against some of the cooperative banks. These have ranged from withdrawal restrictions or change in management. These actions were to thwart financial malfeasance and protect depositors. Sensational news or not, the fact of the matter is all these actions are part of a regulatory process that aims to rationalize the banking system and prevent greater losses.
Depository safety of cooperative banks
Notwithstanding the crackdowns, cooperative banks are still fairly safe for deposits, particularly well-governed and RBI compliant ones. Deposits up to ₹5 lakh per depositor per bank are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), an additional level of protection. That is, even if a bank is facing difficulties, your principal remains safe in the covered amount.
What to look out for as an investor
Not all cooperative banks are identical. While most are performing well and providing stable returns, there may be some that may be showing warning signs of financial distress, such as a pattern of RBI warnings, liquidity traps, or issues of governance. Investors with smaller amounts can watch the financial health of the bank, audited reports, and RBI announcements of diversification of investments across a range of banks also reduces risk and increases safety.
Balancing risk and returns
Cooperative banks also offer a slightly increased interest rate on FDs and savings accounts compared to commercial banks, making them attractive. But where there is more, there is also a part of sense. Comparing the bank's reputation, regulatory compliance, and transparency is understandable prior to parting with large sums. Blaming cooperative bank deposits for safe alternatives like government-backed plans or public sector banks can provide a perspective towards a balance approach.
Making informed decisions
The most important aspect is that cooperative banks do not have to be risky, as long as you choose and select and keep your guard up. Paying attention to RBI reminders, going through bank notifications, and knowing about insurance coverage can enable you to safeguard your money. Keeping your guard up and being careful, you can make returns at reasonable rates without exposing yourself to too much risk.
FAQs
Q: Is cooperative bank deposit insured?
Yes, DICGC insures deposits up to ₹5 lakh per depositor per bank.
Q: Do I avoid all the cooperative banks after RBI raids?
No, most of the cooperative banks are safe; opt for fiscal solidity and regulatory compliance while selecting a bank.
Q: How can I minimize risk investment in cooperative banks?
Spread the deposit in two or more banks, watch RBI announcements, and complement them with other safe modes of investments.
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