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

The central bank has barred New India Co-operative Bank from sanctioning new loans, renewing advances, accepting new deposits, and has restricted depositors from withdrawing funds for six months.

The Reserve Bank of India (RBI) on February 13 imposed restrictions on operations of the Mumbai-based New India Co-operative Bank due to concerns over its financial stability and liquidity position.

The central bank barred the bank from sanctioning new loans, renewing advances, and accepting new deposits, and has restricted depositors from withdrawing funds for six months, effective from the close of business on February 13.

“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,” the RBI said.

No withdrawals from savings, current or other accounts

Accountholders cannot make withdrawals from their savings, current, or any other type of account. However, the bank is permitted to set off loans against deposits, as per RBI guidelines.

Furthermore, the RBI has barred the bank from granting or renewing loans, making new investments, or accepting fresh deposits without prior approval.

Depositors can claim up to Rs 5 lakh via insurance

All banks are required to insure deposits with Deposit Insurance and Credit Guarantee Corporation (DICGC), an RBI subsidiary. Depositors of stressed banks can claim up to Rs 5 lakh from the DICGC, based on submission of willingness by the depositors concerned and after due verification. This provides some assurance for their deposits.

Until April 2021, depositors could access this cover only if the banks went into liquidation. This meant that even if a moratorium was imposed, depositors had to wait endlessly for the RBI to decide if the bank needed to go for liquidation or not. Only after that decision was taken could the depositors get some money back.

However, Budget 2021 amended the rules to pave the way for providing depositors of such troubled banks that are placed under moratorium immediate access to deposit insurance cover of Rs 5 lakh.

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Track your deposit claims online

Customers of failed banks who have been awaiting claims on their deposits of up to Rs 5 lakh can now easily check their status online. DICGC, a subsidiary of the RBI which administers such claims, launched Daava Soochak, an online claim status tracker, in mid-2024.

Deposits of failed banks – even those under moratorium imposed by the RBI and not yet liquidated – are insured to the extent of Rs 5 lakh, covering both principal and interest.

As per the Deposit Insurance and Credit Guarantee Corporation Act, 1967 (amended in 2021), such depositors are entitled to receive their claims within 90 days. Prior to this amendment, depositors could gain access to the insurance cover only if their banks went into liquidation. They had to wait endlessly for the RBI to decide if the bank needed to go for liquidation or not.

Through this tool on the DICGC website, such depositors can instantly figure out the status of their claims.

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How can a depositor access this tool?

You will have to visit the DICGC website and locate the tracker displayed prominently on the homepage. Then select the bank from the dropdown list and key in your mobile number to know the status. “To begin with, depositors can view the status of their claims for banks placed under All Inclusive Directions (AID) post April 01, 2024,” the press release issued by DICGC said.