Money9 Edit | RBI should redefine 'hardships'

India is home to 1,481 non-scheduled urban co-operative banks and 53 scheduled urban co-operative banks as of January 31, 2021. Cumulatively, these banks have savings deposits of approximately Rs 5 lakh crore from over 8.5 crore depositors.

Over the past few years co-operative banks have been in the news for all the bad reasons. In fact Reserve Bank of India has clamped down on several co-operative banks for violations of rules or deterioration in finances. According to a report, in 2020 alone RBI had issued almost 106 directives either restricting their business operations or extending the period of existing directions. The poor depositors were on the receiving end of regulatory action. To minimize loss of individual depositors, finance ministry hiked the bank deposit insurance in scheduled commercial banks to Rs 5 lakh per depositor from Rs 1 lakh.

It is a long-drawn process before a depositor’s claim gets settled by the DICGC. To aid the depositors with liquidity RBI allows certain types of withdrawal. Take the case of Punjab Maharashtra Cooperative (PMC) Bank in which depositors are allowed to withdraw up to Rs 5 lakhs on hardship grounds for treatment of terminal illnesses, including treatment of COVID-19. But that is not enough. The raging second wave of COVID-19 and the localised lockdowns has made it difficult for many to make both ends meet. The economic fallout of a lockdown is huge that prompted Prime Minister Narendra Modi to say that national lockdowns should be a “last resort” and state administrations would manage their own containment strategies.

COVID-induced lockdowns have altered the definition of hardship as numerous people are unable to make both ends meet. RBI should now broad base its definition of hardship keeping the current situation in mind. People whose hard-earned deposits are locked up in these banks need help to access their own money when survival is at stake.