The New India Co-operative Bank Crisis and DICGC’s RoleThe New India Co-operative Bank, which is based in Mumbai, was on the verge of collapse due to mismanagement and fraud. The bank had a significant presence in the state of Maharashtra, with numerous branches and a large customer base. However, in 2018, it was discovered that the bank’s management had been involved in large-scale irregularities, leading to a substantial loss of funds.As a result, the Reserve Bank of India (RBI) had to step in and take control of the bank to prevent its collapse. The RBI also asked the Deposit Insurance and Credit Guarantee Corporation (DICGC) to provide insurance coverage to the bank’s depositors.DICGC, which is a subsidiary of the RBI, provides deposit insurance to protect depositors in case of bank failures. The corporation ensures that depositors receive their insured deposits up to a certain amount, even if the bank fails. In the case of the New India Co-operative Bank, DICGC played a crucial role in providing insurance coverage to the depositors.The failure of the New India Co-operative Bank highlighted the importance of regulatory oversight and the need for effective deposit insurance coverage. It also underscored the significance of DICGC’s role in maintaining financial stability and protecting depositors’ interests.

The New India Co-operative Bank in Mumbai is facing a financial crisis due to allegations of a Rs 122 crore fraud, prompting the Reserve Bank of India (RBI) to impose strict restrictions on the bank’s operations. The restrictions include a ban on granting new loans, renewing existing advances, and accepting new deposits, as well as a six-month moratorium on deposit withdrawals from February 13, 2025. However, the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI, provides a safety net for depositors, insuring deposits up to a limit of Rs 5 lakh.

The DICGC was established to protect depositors in case of bank failures, and its insurance coverage has undergone significant changes in recent years. Prior to April 2021, depositors could only claim their insured amount if their bank had entered liquidation, leaving many waiting indefinitely during a moratorium. However, the 2021 Budget introduced amendments to the DICGC Act, allowing depositors immediate access to insurance coverage up to Rs 5 lakh, even if their bank is under moratorium but not yet liquidated.

In the case of the New India Co-operative Bank, the DICGC plays a critical role, with around 90% of the bank’s 1.3 lakh depositors fully covered by the insurance scheme. Despite the withdrawal restrictions, depositors can still use their funds to offset any loans owed to the bank, and the DICGC ensures that each depositor can reclaim up to Rs 5 lakh, providing a measure of financial security during these challenging times.

To claim insurance from the DICGC, depositors must express their intent and undergo a verification process. The 2021 amendment to the DICGC Act guarantees that depositors will receive their funds within 90 days from the start of the claim process. The DICGC has also introduced an online tool, Daava Soochak, to enable customers to monitor their claim status easily, enhancing transparency and efficiency in the claims process. Overall, the DICGC provides a vital safety net for depositors, ensuring that their funds are protected in the event of a bank failure.