New India Co-operative Bank Fraud: RBI Restrictions and DICGC Safeguards

Current Affairs National

Posted by newadmin on 2025-02-19 08:44:17 |

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The New India Co-operative Bank in Mumbai is facing turmoil after allegations of a ₹122 crore fraud. In response, the Reserve Bank of India (RBI) has imposed strict restrictions, preventing the bank from granting new loans, renewing existing advances, or accepting new deposits. Additionally, depositors are unable to withdraw funds for six months starting February 13, 2025. Amid this crisis, the Deposit Insurance and Credit Guarantee Corporation (DICGC) serves as a crucial safety net for affected depositors.

The DICGC, a subsidiary of the RBI, was established to protect depositors in case of bank failures. It insures deposits across all banks, ensuring that depositors can recover funds up to a specified limit if their bank faces financial distress. Currently, depositors can claim up to ₹5 lakh under this insurance scheme.

Before April 2021, depositors could only claim their insured amount if their bank entered liquidation, leading to long waiting periods during moratoriums. However, amendments to the DICGC Act in the 2021 Budget introduced immediate access to deposit insurance of up to ₹5 lakh, even if the bank is under moratorium but not yet liquidated. This reform provides crucial protection for depositors’ funds, covering both principal and interest.

In the case of the New India Co-operative Bank, the DICGC plays a key role in safeguarding depositors. Nearly 90 percent of the bank’s 1.3 lakh depositors are fully covered under this scheme. While withdrawal restrictions remain in place, depositors can use their insured funds to offset any outstanding loans with the bank. This ensures financial security for many affected customers.

To claim insurance from the DICGC, depositors must formally express their intent. Once claims are submitted, the DICGC verifies the details and ensures that depositors receive their insured amount within 90 days from the initiation of the process. To improve transparency, the DICGC introduced Daava Soochak in 2024, an online tool that allows depositors to track their claim status with ease.

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