Hapless depositors of urban co-operative banks

Urban co-operative banks are falling like pack of cards, leaving hapless depositors high and dry!

There is an unprecedented euphoria both at the Reserve Bank of India (RBI) and the Finance Ministry to grant new banking licenses. There are 26 aspirants waiting in the wings to start banking operations once they get through the fit and proper criteria prescribed by RBI. To add to this excitement, the governor of RBI has recently announced that the central bank would soon come out with major reforms in the banking sector that will allow foreign banks to enter India in a big way and even take over domestic lenders, which has even created ripples in the stock market in our country.

On the other side of the spectrum is the strong view conveyed by the Parliament’s Standing Committee on Finance (PSCF) against granting new banking licenses to industrial houses. The PSCF felt the industrial houses may not be geared to achieve national objectives of priority sector lending and financial inclusion, going by the past experience of poor performance of many new private banks licensed by RBI in two tranches in1993 and 2001.

In this exuberance, what is conveniently forgotten is the pitiable plight of a large number of bank depositors caused by a series of failures of urban co-operative banks (UCBs) year after year. During first ten months of the current year, ten urban co-operative banks kissed death causing untold hardships to a large number of bank depositors, who are virtually left high and dry for no fault of theirs. The UCBs that went belly up during the current calendar year are as under:

Urban co-op banks de-licensed by RBI from 1 January to 30 September 2013

Date of closureName of UCC Bank  State    Date of license
3 January 2013Swami Samarth Sahakari Bank Ltd. Solapur.  Maharashtra
13 February 1988
7 February 2013Abhinav Sahakari Bank Ltd. Rahuri. NagarMaharashtra25 March 2000
21 May 2013Arjun Urban Co-op. Bank Ltd. Solapur.Maharashtra14 October 1996
12 June 2013Vaishali Urban Co-op. Bank Ltd. Jaipur.Rajasthan2 March 1998
24 August 2013Mahatma Fule Urban Co-op. Bank Ltd. PatodaMaharashtra23 July 1998
27 August 2013Srikakulam Co-op. Urban Bank Ltd. SrikakulamAndhra Pradesh21 November 1995
6 September 2013Kasundia Co-op. Bank Ltd. HowrahWest Bengal 26 July 1986
12 September 2013Vishwakarma Nagari Sahakari Bank, AurangabadMaharashtra28 October 1999  
25 September 2013Sri Siddhivinayak Nagari Sahakari Bank. RasayaniMaharashtra7 January 1995 
1 October 2013Konkan Prant Sahakari Bank Ltd., MumbaiMaharashtra17 June 1988

As on 31 March, 2013, there were 2,007 urban co-operative banks functioning in the country under the dual control of the state governments and the RBI and these banks are covered under the deposit insurance cover of Rs1 lakh per depositor provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is a subsidiary of RBI. And every year several urban co-operative banks go into liquidation. During 2012-13, as many as 19 co-operative banks have been wound up, where as during 2011-12 banks numbering 23 were closed down.  If you go through the press releases of RBI, every other day, the central bank penalizes one co-operative bank or the other for breach of banking regulations. This finally, culminates in the withdrawal of banking licence at an average of more than one bank a month, which is not only painful to the depositing public but a sad commentary on the functioning of the banking institutions in our country.

Why urban co-operative banks (UCBs) are important for the economy?

According to Manual on Financial and Banking Statistics 2007 of RBI, “urban co-operative banks play an important role in meeting the banking needs of urban and semi urban areas of the country. UCBs account for about 5% of deposits and almost equal proportion of advances of the banking system. Despite their small share in business, UCBs contribute significantly towards social and economic development, as instrument of financial inclusion. They mobilize savings from the middle and lower income groups and purvey credit to small borrowers, including weaker sections of the society and thereby fill up an important gap in the mechanism for delivery of financial services.”

If UCBs are so vital to the economy, can they not be saved from failure?

What ails the co-operative banks?

A number of UCBs suffer from a series of maladies of miss management, absence of professionalism, interference by political bosses, laxity in internal control due to poor systems and procedures and weak financial position caused by high non- performing loans and their inability to raise required capital. And these problems get compounded by the duality of control by state governments and the RBI, as the latter has very limited control over these banks. When the managements of these banks totally abdicate their responsibility to resurrect the troubled banks, RBI is forced to impose restrictions on their operations, and when they reach a state of beyond repair that RBI withdraws the license resulting in liquidation of these banks. Though the number of sick and weak UCBs is coming down, there still exist a large number of them who need to improve their position to remain in banking business.

Role of Deposit Insurance & Credit Guarantee Corporation (DICGC)

If a bank goes into liquidation the DICGC is liable to pay to each depositor through the liquidator, the amount of his deposit up to Rs1 lakh within two months from the date of receipt of claim list from the liquidator. As per the rules, the DICGC does not deal directly with the depositors of failed banks. The liquidator has to prepare a depositor-wise claim list and send it to the DICGC who on scrutiny makes the payment to the liquidator, who is liable to pay to the depositors. But if the liquidator fails to submit the claim to the DICGC, the depositor has no way to get his dues and has to suffer in silence.

Can this suffering of depositors go beyond a reasonable period due to the failure of the liquidator to submit the claim to DICGC in time? Unfortunately, the position is so bad that depositors of as many as 25 UCBs, who went bankrupt during the last14 years, are yet to receive their dues from the DICGC due to the failure of the liquidators of these banks to file their claims with the DICGC. This shows utter callousness on the part of the concerned government authorities in continuing with the liquidators, who have miserably failed in their duties to the depositors of these banks. Can there be a worst tragedy than this for the bank depositors? Here is a list of these 25 banks as listed in the website of DICGC.     

           List of Banks under liquidation where claim lists have not been received by DICGC

Sr. No.


Name of the UCBs

Date of Liquidation/


West Bengal

Jhargram Peoples Co-op. Society Ltd.

3 August 1999



Guwahati Co-op Town Bank Ltd.

12 August  1999



Manipur Industrial Co-op Bank Ltd.

23 September 1999



Silchar Co-op Bank Ltd.

16 February 2000


Uttar Pradesh

Federal Co-op Bank Ltd.

16 August 2000


West Bengal

Pranabananda Co-op Bank Ltd.

6 August 2002



Madhepura Urban Development Co-op Bank Ltd.

27 May 2002



Nalanda Urban Co-op Bank Ltd.

27 June 2002



Lamka Urban Co-op Bank Ltd.

3 June 2003



Sibsagar Dist Central Co-op Bank Ltd.

19 June 2003


Andhra Pradesh

Hyderabad Co-op Urban Bank Ltd.

7 March 2006


West Bengal

Rohuta Urban Co-op Bank Ltd.

4 October 2007



Bhadrak Urban Co-op Bank Ltd.

26 September 2008



Belgaum Catholic Co-op Bank Ltd.

8 March 2010



Vaso Co-operative Bank Ltd.

10 April 2010


West Bengal

Ramkrishnapur Co-op Bank Ltd.

17 June 2010



Rajeshwar Yuvak Vikas Sah Bank Ltd.

19 April 2010



Dhanashri Mahila Sahakari Bank Ltd.

3 December 2010



Golghat Urban Co-op Bank Ltd.

16 December 2010



Agrasen Urban Co-op Bank Ltd.

15 February 2011



Dadasaheb Rawal Co-op Bank Ltd.

1 April 2011



The Veershaiva Co-op. Bank Ltd.

30 December 2011



Krishna Valley Co.-op. Bank Ltd.

9 March 2012



Bhusawal PeoplesCo-op. Bank Ltd.

22 March 2012



Madhavpura Mercantile Co-op. Bank Ltd.

18 July 2012

 Source: www.dicgc.org.in

What needs to be done to protect the hapless depositors of these banks?

First, and foremost, there is an urgent need to force the liquidators to do their primary job of submitting the claim to DICGC, get the amount due and disburse the same to the depositors of failed banks without any further delay. If the liquidators are not amenable to the directions they should be replaced without any fear or favour and steps should be taken to appoint liquidators who comply with the orders of the authorities concerned.

The DICGC should not only pay the amount of insured deposits against such a claim, but also pay interest at the bank rate on these deposits over and above the insured deposit amount, as the delay is only due to the failure of the government appointed liquidators. Besides, DICGC as the protector of bank depositors should amend their rules and accept claims from the depositors directly, if the liquidators do not do their job within a reasonable time.

DICGC should be empowered to not only take stern action against the defaulting banks but also be authorized to step in to the shoes of the liquidators who fail to deliver to protect the interest of depositors of failed banks.

RBI should take immediate steps to put an end to the dual control of these banks even by getting the required laws amended and have complete control over these banks to ensure that they are run on sound lines and failure of these banks should be considerably minimized if not totally avoided.

In the context of many co-operative banks falling like of pack cards causing irreparable damage to the banking system and unbearable loss to the poor depositors, who have no voice in the present scheme of things, RBI should first put the house of co-operative banks in order before venturing into granting new banking licenses. The low level of deposit insurance cover existing at present in respect of the weak and shaky co-operative banks is nothing but a mockery of the banking system that calls for total overhaul in the interest of retaining public confidence in the banking system in our country.  

RBI should give utmost priority to protect the hapless depositors and work out a new banking order that is 100% safe and secure to protect the poor, illiterate and less fortunate people of our country, who are now virtually pushed in to the banking system in the name of financial inclusion without ensuring safety of their hard earned savings.

(The author is a banking analyst and he writes for Moneylife under the pen-name ‘Gurpur’)

Ajay Kumar De
8 years ago
This article miserably failed to enlighten on proven cases of involvement of even highly placed officials of RBI itself in multi crore scams in UCBs. Sounds baseless and unfounded ? Examine the case of Ramkrishnapur Cooperative Bank in Howrah [WB] where vulnerable documents showing criminal abatement by RBI of social crimes by only two realty promoters of the city finding berth in Board of Directors of the bank. Yes, when Shri Pranab Kumar Mukherjee happened to be the Finance Minister had specific personal knowledge with such documents handed over to him at his residence in Dhakuria, Kolkata. Any one of present PM,FM,HM or Directors of ED or CBI, if at all interested to curb widespread corruptions in high places, can get in touch with Ajay De @ 9433899061. Ramkrishnapur scam has some similarity with mysteries associated with Subhas Chandra. INC, Left, BJP or any other microscopic entity can show courage to bring the truth.
9 years ago
One more UCB....Baripada Urban co-op Bank Ltd ODISHA delicenced by RBI without giving reasonable time though the bank was progressing and depositors were having faith that they will get their money back with the passage of time..... Since delicencing RCS have not taken any step....
Ajay Kumar De
9 years ago
The things are clear from this write up are (i) DICGCI is a subsidiary of RBI (ii) DICGCI woun't act unless Liquidator submits claims (iii) At least as per West Bengal Laws, Liquidators are always from Cooperation Dept. What happens if a Himalayan corruption is perpetrated by the Trio of RBI-RCS-Management of the bank ? Who would rescue the depositors ? Who would force the liquidators to do their primary job of submitting the claim to DICGC ? How DICGC should be empowered to take stern action against the defaulting banks where even Hon'ble FM had personal knowledge about the perpetrators in Ramkrishnapur Cooperative Bank in Howrah ? People may please like to guess diversity of the Trio.
Ritesh Shah
9 years ago
indian government is a big joke, in one line "only power hungry crook minsters are leading this all banks, and everything is under their control, and why will lawmakers will make law against them? INDIANS ONLY HAVE TO CRY, WORK EARN AND THEN LOSE ALL MONEY TO THIS LEGAL CROOKS"....one well known name is SHARAD PAWAR .. and still RULING oops sorry.. RUINING.. LOL."
Anil Agashe
10 years ago
The question really is are UCBs relevant at all. Good UCBs should be encouraged to convert themselves in Pvt Banks as Saraswat is reportedly doing. Weaker banks should be merged where ever feasible.
If after knowing the weakness in UCBs people still wish to put their money in those banks little can be done. Co-operative societies are thriving in a city like Pune due to higher interest rates offered by them. Educated Upper Middle Class people also invest money in these!
State governments will not give up their control on co-operative banks easily.
Free Helpline
Legal Credit