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Exclusion of “New India Co-operative Bank Ltd., Mumbai” from the Second Schedule to the Reserve Bank of India Act, 1934

February 18, 2026 5 min read Economics GS Paper III (Indian Economy Banking)
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What Happened

  • The Reserve Bank of India excluded New India Co-operative Bank Ltd., Mumbai from the Second Schedule to the RBI Act, 1934, via Notification CO.DOR.RAUG.No.S7907/08.27.498/2025-26 dated January 6, 2026.
  • The notification was published in the Gazette of India (Part III -- Section 4) on January 29, 2026.
  • The exclusion follows the discovery of an alleged Rs 122 crore scam at the bank. An RBI inspection on February 12, 2025 found Rs 112 crore missing from the Prabhadevi branch safe and Rs 10 crore from the Goregaon branch safe.
  • Following these discrepancies, the RBI had imposed withdrawal restrictions on the bank.
  • The bank, incorporated on December 6, 1967, is now classified as a non-scheduled bank and loses the statutory privileges associated with scheduled bank status.

Static Topic Bridges

Second Schedule to the RBI Act, 1934 and Scheduled Bank Status

The Second Schedule to the Reserve Bank of India Act, 1934, lists all banks that qualify as "scheduled banks" under Section 42(6)(a) of the Act. Inclusion in this schedule confers specific statutory privileges and obligations.

  • Section 42(6)(a) of the RBI Act prescribes criteria for inclusion: a bank must have paid-up capital and reserves of not less than Rs 5 lakh, and its affairs must not be conducted in a manner detrimental to the interests of its depositors.
  • Scheduled banks are required to maintain the Cash Reserve Ratio (CRR) with the RBI -- a percentage of their Net Demand and Time Liabilities (NDTL).
  • Scheduled banks are entitled to borrow from the RBI at the bank rate for normal banking purposes and receive membership to clearing houses.
  • Non-scheduled banks are not required to maintain CRR with the RBI and cannot borrow from the RBI for normal banking purposes (only in emergencies or abnormal circumstances).
  • The RBI can exclude a bank from the Second Schedule if it ceases to meet the prescribed criteria or if its affairs are being conducted in a manner detrimental to depositor interests.
  • As of 2025, India has over 1,500 scheduled banks including commercial banks, regional rural banks, and urban cooperative banks.

Connection to this news: The RBI's exclusion of New India Co-operative Bank from the Second Schedule directly results from the bank's affairs being conducted in a manner detrimental to depositor interests, as evidenced by the Rs 122 crore cash discrepancy.

Cooperative Banking Structure and Regulation in India

Cooperative banks occupy a unique position in India's banking system, operating as member-owned financial institutions registered under cooperative societies legislation while being regulated for banking functions by the RBI.

  • Cooperative banks have a dual regulatory structure: registered under either the State Cooperative Societies Act or the Multi-State Cooperative Societies Act, 2002 (if operating across state boundaries), while banking operations are regulated by the RBI under the Banking Regulation Act, 1949.
  • Urban Cooperative Banks (UCBs) primarily serve urban and semi-urban areas, while rural cooperative banks (State Cooperative Banks, District Central Cooperative Banks, and Primary Agricultural Credit Societies) serve the agricultural and rural sector.
  • The Banking Regulation (Amendment) Act, 2020 significantly enhanced the RBI's supervisory powers over cooperative banks, bringing UCBs and multi-state cooperative banks on par with commercial banks regarding governance, audit, and management standards.
  • The 97th Constitutional Amendment (2012) strengthened cooperative governance by mandating democratic elections, regular audits, and limited tenure for board members.
  • NABARD supervises rural cooperative banks and provides refinance support.
  • Urban cooperative banks have been plagued by governance failures -- the PMC Bank crisis (2019, involving Rs 4,355 crore fraud) being the most prominent example, which led to the 2020 amendment strengthening RBI oversight.

Connection to this news: The New India Co-operative Bank case illustrates the persistent governance challenges in the cooperative banking sector. The Rs 122 crore scam at a single UCB reinforces the rationale for the 2020 amendment that gave the RBI stronger supervisory and enforcement powers over cooperative banks.

Deposit Insurance and Depositor Protection

When a bank faces regulatory action or exclusion from the scheduled bank list, the safety of depositors' funds becomes a critical concern, addressed through the deposit insurance framework.

  • The Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the RBI, provides deposit insurance to all banks in India (including cooperative banks).
  • The deposit insurance cover was raised from Rs 1 lakh to Rs 5 lakh per depositor per bank effective February 4, 2020.
  • The DICGC Act, 1961 (amended 2021) mandates that in the event of a bank being placed under restrictions, DICGC must pay insured deposits within 90 days.
  • The insurance covers all deposits (savings, fixed, current, recurring) up to Rs 5 lakh.
  • The premium for deposit insurance is paid by the insured bank (not the depositor) at the rate of 12 paise per Rs 100 of assessable deposits per annum.
  • As of March 2025, DICGC insured deposits covered approximately 97.8% of all deposit accounts in number terms (though a smaller share by value, as large deposits exceed the Rs 5 lakh ceiling).

Connection to this news: Depositors of New India Co-operative Bank are protected by DICGC insurance up to Rs 5 lakh per depositor. The exclusion from the Second Schedule and prior withdrawal restrictions trigger the DICGC's obligation to settle insured deposit claims.

Key Facts & Data

  • New India Co-operative Bank Ltd., Mumbai excluded from Second Schedule to RBI Act, 1934 on January 6, 2026.
  • Alleged scam: Rs 122 crore (Rs 112 crore from Prabhadevi branch, Rs 10 crore from Goregaon branch).
  • Bank incorporated: December 6, 1967.
  • Section 42(6)(a) of RBI Act: criteria for scheduled bank status (minimum Rs 5 lakh paid-up capital, affairs not detrimental to depositors).
  • Banking Regulation (Amendment) Act, 2020: enhanced RBI supervision over cooperative banks.
  • DICGC deposit insurance cover: Rs 5 lakh per depositor per bank (raised from Rs 1 lakh in 2020).
  • DICGC must pay insured deposits within 90 days of a bank being restricted.
  • DICGC covers approximately 97.8% of all deposit accounts by number.