A year ago Maratha Mandir Cooperative Bank went bust. The fall began with a run on deposits at one of its branches caused by rumours that the bank had gone insolvent.
The rumours were the creation of a few shareholders who were rivals of the group of ruling shareholders.
This amply demonstrates that the small size of a cooperative bank makes it vulnerable to slightest hearsay. It's not just corrupt practices of the management or the board of directors that can lead to liquidation of a cooperative bank.
Then the question that comes immediately to one's mind is: Are deposits with cooperative banks safe?
The higher rate of interest offered by cooperative banks compared to commercial banks will continue to lure a large number of depositors. So what is it that a depositor needs to do to ensure he does not put his money where the chances of losing are higher?
Senior cooperative bankers have a piece of advice for the depositors -- check the state of health of the cooperative before depositing their hard earned money.
The checklist for prospective depositors is:
-
Is the bank a profit making one?
-
Are the accounts of the bank properly audited?
-
How much are the gross and net non-performing loans?
-
Does the bank hold annual general meetings regularly?
-
What is the bank's audit classification?
-
What's stated in the report of Reserve Bank of India inspection?
The top 20 urban cooperative banks control 70 to 80 per cent of the deposits of the cooperative banking sector. And most of these are considered to be well-managed ones.
So, should the common man not get carried away and also consider good cooperative banks for depositing money? Yes, says the managing director of Saraswat Cooperative Bank, pointing at the collapse of even a well-regulated commercial bank like Global Trust Bank.
The menace of mismanagement causing the downfall of a bank is not restricted to the cooperative sector. The depositors of GTB were saved only because RBI acted swiftly to merge the bank with Oriental Bank of Commerce.
Depositors need to make the best use of the Rs 100,000 insurance cover for deposits.
This is what deposit insurance means:
Insurance cover is available on deposits such as savings, fixed, current and recurring.
Each depositor in a bank is insured upto a maximum of Rs 100,000 for both principal and interest as on the date of liquidation/cancellation of bank's licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force.
Deposits in different branches of a bank are aggregated for the purpose of insurance cover and a maximum amount upto Rs 100,000 is paid.
Deposits in different banks are separately insured. If one has deposits with more than one bank, deposit insurance coverage limit is applied separately to the deposits in each bank.
A person has a deposit account in a bank in his name. The person also opens a joint account. The joint account is then considered in a different right and different capacity and insurance coverage is provided separately. Each joint account is insured separately from any deposits individually owned by the joint depositors. Each joint account owned by a combination of different persons is insured upto Rs 100,000.
Depositors need take maximum advantage of the way deposit insurance is structured. This would mean splitting of deposits between different banks and among different set of joint accounts within the same bank.
More from rediff