The recent Rs 122-crore fraud at New India Co-operative Bank has once again exposed the deep-rooted vulnerabilities of India’s cooperative banking sector. From the PMC Bank collapse to the Angamaly fraud, a pattern of insider collusion, weak regulation, and systemic apathy continues to devastate small depositors across the country.
A Sector Built for the People, Hijacked by the Powerful
India’s cooperative banks were conceived as grassroots financial institutions pillars of support for farmers, small traders, pensioners, and working-class families. Instead, they have devolved into breeding grounds for financial mismanagement, political interference, and unchecked corruption. The Rs 122-crore fraud at New India Co-operative Bank is just the latest in a long series of betrayals.
According to the Enforcement Directorate (ED), former chairman Hemant Shah diverted Rs 45 crore of the embezzled funds to offshore entities tied to him. This is eerily reminiscent of the 2019 PMC Bank debacle, where Rs 4,000 crore was siphoned off through fraudulent loans to a single borrower, Housing Development and Infrastructure Ltd (HDIL). Unity Small Finance Bank later absorbed the ailing PMC, but not before countless depositors endured years of financial distress and uncertainty.
In Kerala’s Karuvannur Bank, fraudsters used already pledged loan documents to re-borrow funds, bilking the system with impunity. These are not isolated cases—they are symptoms of a widespread disease within India’s cooperative financial framework.
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Insider Collusion, Regulatory Loopholes, and Political Capture
What ties these scams together is a consistent pattern: insiders manipulating systems designed to protect the common man. At New India Co-operative Bank, it is alleged that General Manager Hitesh Mehta pilfered funds over six years without the knowledge of auditors or even the Reserve Bank of India (RBI). This wasn’t oversight; it was regulatory failure.
A deeper dive into PMC Bank’s records reveals a similar malaise. Management actively cooked the books, hiding massive non-performing assets (NPAs). Despite RBI inspections, no red flags were raised. How did 44 HDIL-linked accounts come to dominate 73% of PMC’s loan portfolio without triggering alarms?
Much of this stems from the fractured regulatory framework governing cooperative banks. While the RBI oversees their banking functions, state governments via their registrars control administrative aspects. This split jurisdiction has created gaping holes that fraudsters are all too eager to exploit. RBI inspections are often formulaic and state regulators, under political pressure, rarely intervene forcefully.
The boards of many cooperative banks are politically connected, often prioritizing loyalty over accountability. In this climate, auditors are reduced to rubber stamps, while bank officials funnel public money into shell companies, cronies’ ventures, or offshore accounts.
The Human Cost of Greed and Negligence
The damage isn’t just financial it’s deeply human. When the New India scam broke, hundreds of panicked customers queued outside branches, only to face RBI-imposed withdrawal limits. Many of them were small savers who depended on the bank for daily expenses, education funds, or retirement security.
In the case of PMC Bank, years passed before some depositors received any meaningful resolution. Some died waiting for access to their savings. These people are not numbers on a ledger they are families whose lives have been shattered by systemic negligence.
The Rs 96 crore fraud at Angamaly Urban Co-operative Bank in Kerala adds to the growing list of scandals. In totality, over 2,000 suspect loans and Rs 400 crore worth of NPAs are under review in the New India case alone.