New India Co-op Bank crisis: Customers should change bank mandates for EMIs, redirect MF SIPs

New India Co-op Bank crisis: Know how to safeguard yourself

With the Reserve Bank of India (RBI) suspending the operations of the stressed New India Co-operative Bank and superseding its management due to a Rs 122-crore fraud unearthed recently, close to 1.3 lakh depositors find themselves locked out of their lifetime savings.

The banking regulator has barred the New India Co-op Bank from granting any new loans, making any investments or accepting fresh deposits from February 13, 2025, without prior approval. The scam-hit bank has been directed not to allow withdrawal of any amount from savings or current accounts or any other account of a depositor.

While deposits up to Rs 5 lakh are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, it’ll be a while – around 90 days – before accountholders get access to these funds.

In the meantime, they will have to make alternative arrangements to pay EMIs for loans that they might have taken from other lenders and ensure that their mutual fund SIPs (systematic investment plans) continue uninterrupted, among other things.

Here are some measures that New India Co-operative Bank customers need to take immediately to cushion the impact on their savings:

Revoke ECS debit mandates for loan EMIs

If you have taken a loan from any other bank or financial institution and equated monthly installments (EMI) are being paid through your New India Co-op Bank account, you need to take action promptly. “Borrowers will have to change the ECS (electronic clearing service) debit instructions. Your EMI commitment will have to be honoured through another bank account,” says Vipul Patel, Founder, MortgageWorld.

Although the bank is facing trouble, the responsibility of repaying your loans rests with you. Ensure that you write to your lending institution, intimating them about the change in your account status. “If you do not make alternative arrangements to keep paying the EMIs it will be treated as default, you will have to cough up penal charges and your credit score, too, will take a hit,” points out Pankaj Mathpal, Founder, Optima Money Managers.

Also read | RBI’s curbs on New India Co-op Bank: Here’s how deposit insurance can help affected depositors

Ask the bank to set off your deposits against loan dues

Customers who have ongoing loans with the New India Co-op Bank and also maintain savings or fixed deposit accounts with the entity have another option. “Such borrowers ought to write to the bank. They should issue instructions to adjust the balances in their savings or deposit accounts against the loan amount due,” says Patel.

In its directive issued on February 13, the banking regulator has allowed the bank to set off loans against deposits. If your deposit amount is not adequate to pay off your loans, you will have to continue servicing the loans. “Borrowers’ liability will not be extinguished only because their lender is in trouble. It is understood that they will have to continue to honour their repayment obligations,” says Suresh Sadagopan, Founder, Ladder7 Financial Advisories.

Redirect MF SIPs to other bank accounts

Since your account will be frozen until further instructions from the central bank, you will have to intimate your asset management company (AMC) or mutual fund intermediaries regarding the change in circumstances.

BSE Star MF Platform has already intimated its intermediaries about the suspension of New India bank mandates for SIPs. “…all the XSIP registrations which are linked to mandate of New India Co-operative Bank (NICB) shall have the status as SUSPENDED. Members have the option to shift these XSIP registrations to any other banks approved NACH mandate of respective client.  Further, post three consecutive order triggers during the suspension period, the XSIP registration will be auto cancelled by the system,” it said in a BSE filing.

“You will have to switch over to another bank. A change in KYC may not be required, but you will have to inform your intermediary regarding your intention to change the bank account details. The onboarding process could take up to 15 days. Until then, the SIP transactions will not go through,” says Sadagopan.

This apart, updating the bank details across mutual fund houses and intermediaries is important to ensure that redemption proceeds are credited to your alternative, functional accounts. Go through your investment history and change the bank mandates.

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Lessons from PMC, YES and New India Co-op Bank crises

For one, the multiple bank crises witnessed in the last five years demonstrate the importance of diversification across banks to avoid the risk of putting all your eggs in a single basket. Moreover, if you have deposits with multiple banks, the insurance cover of Rs 5 lakh will be applicable for deposits in each bank separately. So, diversifying deposits across banks is one way to optimise insurance cover.

If you have multiple accounts in the same bank across branches in the same right and capacity, the accounts will be collectively eligible for insurance cover of Rs 5 lakh. “For example, Shri SK Pandit opens one or more savings/current account and one or more fixed/recurring deposit accounts etc., all these are considered as accounts held in the same capacity and in the same right. Therefore, the balances in all these accounts are aggregated and insurance cover is available up to Rs 5 lakh,” the DICGC website states.

Alternatively, you can maintain joint accounts in the same bank but in a manner where the names of the accountholders are not in the same order. Likewise, in the case of different ownership statuses – for instance, if you maintain deposit accounts as a guardian of a minor, partner of a firm, director of the company and so on, the sum insured will be individually available to each of these deposits. “If Shri SK Pandit also opens other deposit accounts in his capacity as a partner of a firm or guardian of a minor or director of a company or trustee of a trust or a joint account, say with his wife Smt. KA Pandit, in one or more branches of the bank then such accounts are considered as held in different capacity and different right. Accordingly, such deposit accounts will also enjoy the insurance cover up to Rs 5 lakh separately,” the DICGC portal says.