Had he been alive, George Fernandes, the firebrand socialist who championed the working class would have been appalled. The New India Cooperative Bank, founded under Fernandes’ aegis in 1968 to serve the common worker, lies in ruins after its general manager, Hitesh Mehta, was arrested for allegedly siphoning off Rs.122 crore. It is a bitter irony that a bank born out of socialist ideals has met a spectacularly capitalist demise, consumed by greed, mismanagement and regulatory apathy.
The bank, originally conceived to serve the working class, is now in shambles as depositors have been left stranded. The Reserve Bank of India (RBI) has stepped in, freezing withdrawals, halting lending and superseding the bank’s board for a year. The bank’s downfall is symptomatic of a broader rot in India’s cooperative banking sector where misgovernance, political interference and financial malpractice are rife.
The RBI has imposed a moratorium, preventing depositors from withdrawing their hard-earned money beyond the insurance limit of Rs. 5 lakh. Predictably, panic has set in with large queues of customers clamouring for answers. That a bank with its roots in labour activism should leave its depositors in such a predicament is particularly galling. The money was not lost to bad loans or economic downturns but was simply stolen from the vaults.
How did a bank built to serve the underprivileged reach such a sorry state? The answer lies in a mix of poor governance and regulatory lethargy. The New India Cooperative Bank, which started as the Bombay Labour Cooperative Bank, was meant to offer financial services to those shunned by commercial lenders. Over the years, however, it suffered from chronic mismanagement. Its financials have been deteriorating for years. The RBI’s decision to finally step in only followed after depositors’ money had vanished.
Over the past two decades, multiple cooperative banks across the country have collapsed under the weight of corruption and reckless lending. The parallels to the infamous Punjab and Maharashtra Co-operative (PMC) Bank scandals are striking in terms of regulatory lapses and unchecked fraud. The cooperative banking model, once heralded as a means to democratize finance, has long been compromised. In Maharashtra alone, dozens of cooperative banks have collapsed in the past decade, often due to political meddling. Many of these institutions are controlled by local politicians.
The fall of the New India Cooperative Bank must serve as a wake-up call. The RBI needs to enforce stricter audits, enhance transparency requirements and ensure that politically connected individuals do not treat these banks as slush funds. At a time when financial inclusion is a stated priority, India can ill afford to have institutions meant for the common man crumble under the weight of corruption and negligence. Fernandes envisioned a bank that would empower workers and give them a financial foothold. Instead, what remains is yet another cautionary tale of mismanagement and betrayal. Unless urgent reforms are undertaken, similar collapses will follow, leaving ordinary depositors to pay the price for the greed of the few.
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