Recently, a major banking fraud was uncovered in the Mumbai-based New India Cooperative Bank, prompting the Reserve Bank of India (RBI) to impose restrictions on withdrawals. This incident has reignited discussions about the safety of bank deposits and whether the current deposit insurance limit of Rs 5 lakh is adequate. The government is now considering increasing this limit to Rs 8-12 lakh, providing greater security to depositors in case of bank failures.
The New India Cooperative Bank Fraud: What Happened?
The New India Cooperative Bank is a city-based cooperative bank with branches in Mumbai, Thane, Navi Mumbai, Pune, and Surat. A major fraud worth Rs 122 crore was recently discovered within the bank, leading the RBI to impose strict restrictions, including banning deposit withdrawals.
- How was the fraud uncovered?
- RBI conducted an inspection on February 12, 2024, and found discrepancies in cash records.
- Rs 112 crore was missing from the Prabhadevi branch.
- Rs 10 crore was missing from the Goregaon branch.
- Who is responsible?
- Hitesh Mehta, the bank’s former General Manager and Accounts Head, was accused of orchestrating the fraud.
- He allegedly embezzled funds between 2019 and 2025.
- Mumbai Police’s Economic Offences Wing (EOW) has arrested Mehta and his associate Dharmesh Poun.
RBI’s Restrictions on the Bank
In response to the fraud, the RBI imposed strict restrictions on the bank, including:
- No new loans or investments can be issued.
- No fresh deposits can be accepted.
- No disbursement of funds without prior RBI approval.
- The Board of Directors has been superseded, and the RBI will manage the bank for at least 12 months.
- The restrictions are effective for six months but may be extended.
Understanding Deposit Insurance in India
The Deposit Insurance and Credit Guarantee Corporation (DICGC) is responsible for insuring bank deposits in India. However, the current deposit insurance limit is only Rs 5 lakh, meaning that if a bank fails, depositors can claim up to Rs 5 lakh, including both principal and interest.
- Which deposits are covered?
- Savings accounts
- Fixed deposits (FDs)
- Current accounts
- Recurring deposits (RDs)
- Which banks are covered?
- Commercial banks
- Foreign bank branches in India
- Local area banks
- Regional rural banks
- Cooperative banks (excluding primary cooperative banks)
- Who pays for this insurance?
- Banks, not customers, pay an insurance premium to DICGC.
- The premium varies based on the bank’s risk profile.
- High-risk banks, like cooperative banks, pay a higher premium than stable banks like SBI.
Government’s Plan to Increase Deposit Insurance
The government is considering raising the deposit insurance limit from Rs 5 lakh to Rs 8-12 lakh, a significant boost to depositor security. The last revision was in 2020, when the limit was raised from Rs 1 lakh to Rs 5 lakh.
- Why increase the limit?
- Recent bank failures and frauds (PMC Bank, Yes Bank, etc.) have left depositors vulnerable.
- Cooperative banks have faced repeated fraud incidents and financial mismanagement.
- Higher insurance coverage will restore public confidence in the banking system.
- What does this mean for depositors?
- If a bank collapses, depositors can recover more money.
- Greater financial security, especially for those with large savings.
- Encourages more people to trust the banking system, reducing the risk of bank runs.
How to Claim Deposit Insurance?
If a bank fails, depositors must file a claim with DICGC.
- Fill out a claim form with bank details and alternative account information.
- Submit the form before the deadline (March 30, 2025, for New India Cooperative Bank depositors).
- Approved claims are settled within 90 days (by May 14, 2025).
Final Thoughts
The New India Cooperative Bank fraud highlights the need for stronger deposit protection in India. The government’s plan to increase deposit insurance to Rs 8-12 lakh is a crucial step in ensuring better financial security for depositors. While this move is a welcome relief, it also underscores the importance of banking regulations, audits, and financial transparency to prevent such frauds in the future.
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