RBI Curbs on Nagar Sahakari Bank Etawah: ₹10,000 Cap, 6 Months

Why in the news

The RBI restricted the working of Nagar Sahakari Bank Limited of Etawah, Uttar Pradesh, citing worsening finances and supervisory worries. The bank continues to exist, but under tight operating limits.

Key facts

• Action: All Inclusive Directions (AID) under the Banking Regulation Act, 1949.
• Period: six months, open to RBI review.
• Withdrawal cap: ₹10,000 per customer across all deposit accounts.
• Barred without prior written RBI approval: granting loans, accepting fresh deposits and borrowing funds.
• Still allowed: salaries, rent, electricity bills and other essential running costs.
• Not a licence cancellation: the bank legally continues.

Depositor protection

• DICGC insurance covers eligible depositors up to ₹5 lakh per depositor per bank, under the DICGC Act, 1961.
• DICGC is a wholly-owned RBI subsidiary, set up in 1978; it insures commercial banks, RRBs, local area banks and cooperative banks, with principal and interest both counted.
• Limit was raised from ₹1 lakh to ₹5 lakh in February 2020 after the PMC Bank crisis.
• The 2021 DICGC Amendment lets depositors receive insured money within 90 days of a bank being put under restrictions, without waiting for liquidation.
• Deposits above ₹5 lakh depend on recovery from the bank’s assets if it is liquidated.

Background

• AIDs are issued under Section 35A of the BR Act (with Section 56 for cooperative banks); they restrict operations and cap withdrawals but do not close the bank.
• Possible outcomes: recovery with restrictions lifted, merger with a stronger bank, or eventual licence cancellation.
• The Banking Regulation (Amendment) Act, 2020 brought cooperative banks fully under RBI regulation, with powers such as superseding boards and approving amalgamations.
• Small urban cooperative banks are vulnerable owing to thin capital, concentration risk and weak governance.

PMC Bank precedent

• In September 2019 Punjab and Maharashtra Co-operative Bank was put under an AID after about 73% of its loans were found to be tied to a single real-estate group, HDIL, hidden through fake accounts.
• The episode led to the 2020 BR Amendment, the higher DICGC limit and the 90-day payout rule; PMC Bank later merged with Unity Small Finance Bank in 2022.

Urban cooperative bank tiers (revised 2022)

• Tier 1: deposits up to ₹100 crore, single district; Tier 2: up to ₹1,000 crore.
• Tier 3: ₹1,000 crore to ₹10,000 crore; Tier 4: above ₹10,000 crore, each with graded rules.

Exam angle

• Insurance limit: ₹5 lakh; insurer: DICGC (RBI subsidiary).
• Section 35A: RBI’s power to issue directions to banks.
• Related terms: AID, UCB, moratorium-style restriction, PMC Bank.