Account holders of the New India Co-operative Bank woke up to a rude shock on Friday morning, after the Reserve Bank of India's bar on withdrawal of funds came into effect.
The order was issued on Thursday evening, since the cooperative bank faces liquidity issues and amid supervisory concerns.
The restriction has been imposed for six months and will be subject to review later.
This means that no customer will be able to withdraw money from his or her savings, current or any other accounts with the bank.
The RBI has issued directions to the bank stating that it can adjust loans against deposits. It has also allowed the bank to carry out essential payments like paying employee salaries, rent and utility bills.
The RBI action has created panic among the bank's depositors who have thronged to its branches to demand their money back.
Speaking to ANI, Mumbai resident Seema Waghmare said, "We deposited money just yesterday, but they did not say anything... They should have told us that this was going to happen... They are saying that we will get our money within three months... We have EMIs to pay, and we have no idea how we will do all of that..."
The New India Co-operative Bank has branches at Andheri, Bandra, Chembur, Ghatkopar, Girgaon, Goregaon, Nairman Point, Kandivali, Mulund, Versova and Santacruz in Mumbai. Besides, it has a presence in Pune and Surat.
The last time a cooperative bank went bust was the Punjab and Maharashtra Co-operative Bank in 2019.
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Millions of depositors lost their life savings and families went into financial debt because of the mismanagement of the PMC's affairs.
The RBI has announced that all bank deposits are insured up to Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation, including those by cooperative banks.
According to a MoneyLife report (external link) RBI had imposed a penalty of Rs 22.96 lakh on four cooperative banks, including three from Gujarat and one from Maharashtra, for non-compliance with the directions issued by the banking regulator.
The highest penalty was Rs 15 lakh imposed on the Gujarat-based SBPP Cooperative Bank Limited.
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