The Deposit That Vanished in Mumbai

The Deposit That Vanished in Mumbai

Paresh 52-year-old in Mumbai's, Dadar neighborhood, scrimped for years to stash Rs 4 lakhs in the New India Cooperative Bank. It was his safety net—money for his daughter's wedding. Then, on February 13, 2025, the Reserve Bank of India slammed the doors shut. No withdrawals beyond a pittance. Paresh's calls went unanswered; his visits met locked gates and hollow promises. Overnight, his hard-earned cash evaporated into a Rs 122 crore embezzlement scandal tied to insiders and political shadows. Thousands like him, from teachers to shopkeepers, are scrambling for groceries while their life savings rot in limbo. This is unfolding right now in India's financial underbelly. But what if this is just the start? What if cooperative banks, built to lift the overlooked, become the trap that drags them under?

What went wrong?

Cooperative banks aren't your flashy HDFC or SBI giants. They're community-rooted setups where members—mostly farmers, small traders, or urban workers—pool resources for loans and savings at friendlier rates. You join as a shareholder, vote on decisions, and theoretically, everyone wins. In practice?

People flock to them for that extra 0.5-1% interest on fixed deposits, or loans without the big-bank bureaucracy. Paresh used his for shop repairs; a farmer in rural Maharashtra might borrow for seeds. But the cycle? It starts innocent: Local politicians or insiders control boards, lending to cronies on shaky collateral. Profits roll for the connected; defaults pile up for the rest. When audits hit, the house crumbles—depositors like Paresh scramble, while the elite walk.

These are systemic rot fueled by political capture. Take New India: Founded by socialist icon George Fernandes in 1977 to aid the working class, it ballooned to 11 branches before the 2025 bust. Insiders siphoned Rs 122 crore through fake loans; arrests followed, but depositors are waiting. Echoes of Punjab and Maharashtra Cooperative (PMC) Bank in 2019, where Rs 4,355 crore vanished, leaving 9 lakh depositors high and dry. Or Karuvannur in Kerala, a 2021 fraud exposing links and money laundering.

The "safety net" is a myth for the vulnerable. Over 400 coop banks bled Rs 7,300 crore in losses from 2021-24, per government data. RBI canceled 70 licenses since 2015, with 24 in 2023-24 alone. Depositors get up to Rs 5 lakh insured via DICGC, but as of 2024, only 78 of 363 failed coops fully repaid claims—75% partial or none. For folks like Paresh, that's cold comfort when weddings stall or businesses close the shutter.

Digitization promises fixes, but it's lipstick on a pig. NABARD aims to digitize all coops for better oversight. Yet, RBI slapped penalties on 264 coops in 2024-25 for governance lapses. Without rooting out patronage, tech just hides the cracks faster.

How it started?

Coops trace to 1904's Cooperative Societies Act, meant to combat moneylender exploitation. Post-independence, they exploded: 1,457 urban, 34 state, 351 district by 2025.

Policy pushes like priority sector lending; tech for cheap ops; incentives via tax breaks; geopolitics shielding rural votes; culture of "mutual aid."

But the slope steepened post-2014. 60+ closures. What changed? Demonetization funneled cash into coops, amplifying fraud. RBI's dual regulation (with state registrars) created more loopholes. Incentives: Boards prioritize votes over viability. Always there? Yes, buried under "progress" narratives—like how PMC was hailed until it wasn't. Now, with inflation biting, defaults surge, exposing the buried truth.

But there are Possibilities Europe's 18 major groups weathered COVID with stable profits via strong governance—no political boards, focus on member value. Rabobank in Netherlands: 8.5 million members, €600+ billion assets, thrives on sustainability lending. Desjardins in Canada: Over 7 million members, integrates AI for personalized services, minimal failures.

Italy's Emilia Romagna: A coop ecosystem with overlapping federations, generating stable long-term profits and better customer service than shareholder banks.

India's political interference vs. global independence. Quote from European Association of Cooperative Banks: "Cooperative banks outperform on stability and service because profitability isn't the sole goal."

India's reality: 94% license cancellations voluntary.

This erodes trust like acid. Depositors who've lived a crisis are 11% less likely to bank again, fear lingers, shifting behaviors to cash hoarding or risky informal lenders. Eroded faith in institutions fuels populism, as seen in Kerala High Court's blast: "Investigate politicians, don't shield them."

PMC survivors reported PTSD-like symptoms, avoiding banks entirely.

What News Hides

Coops' "extend and pretend" on bad loans mimics global banking risks—CRE, autos, cards could double-default in 2025, as per analysts. This hides true NPA scale, risking chain failures.

Digitization invites cyber threats—undercovered, but with 90% transactions digital (like Co-op Kenya's), hacks could wipe savings overnight. Need robust insurance for digital fraud in coops.

Successful outliers like Sidian Bank (Kenya) surged 424% profits H1 2025 via MSME focus—shows innovation works, but ignored and hidden under the news.

Proves coops can thrive without patronage.

TheBrinks Predictive Analysis

If the economy slows down and delay in RBI mergers. More failures—10-15 coops will shut by 2027 as NPAs rise.

More Political scandals and inflation creeps in. We will experience a Systemic contagion, another PMC-scale bust hitting millions of depositors.

Watchout for : Rising penalties (RBI hit 264 in 2024-25), deposit outflows >5%, or sudden board resignations.

Special thanks to a schoolteacher who funded this research after her family's savings vanished in a coop collapse—her father, a retired mill worker, trusted these banks his whole life, only to face eviction notices at 78. It's stories like hers that demand we drag this into the light.

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-Chetan Desai

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