[GeeTee TSI]

I know of some very well off people who have deposited hefty FD amounts in such (co-operative) banks purely because of the highest rate of interest, period.

Call it lack of financial literacy (although very well educated) or just sheer lack of effort to invest in other/better avenues.

During the PMC crisis I was stunned to hear losses suffered by such people, who in my opinion were nowhere close to being target customers for a small co-operative bank in a metro city!

[V.Narayan]

Originally Posted by Fuldagap

Ahmedabad District Co-operative bank, comes under the purview of NABARD. Starting point would be an alleged 745 cr rs cash money deposit in 5 days. Notes being the 'demonetised' ones. One needs to understand the finer details, like exactly how much money was deposited in each account in question, not just the average deposit per account.

You made a very serious accusation that the Indian Air Force was used for or was complicit in laundering/transporting or whatever currency notes in the demonetization days. Kindly share for the benefit of all the credible news websites. Credible being the key word here. The IAF was used by the RBI in those days to legitimately move currency around. But show me the credible news of the IAF being on the wrong foot. Random accusations by random politicians doesn't count. If you cannot you may wish to consider removing the accusatory bits.

[NiInJa]

There is another side to it: The unique customer base of these banks. Apart from usual people with usual savings, many high earning individuals with questionable source of income / local politicians use these banks to stash loads of cash, no questions asked. I am short on time really to put all my experiences here

Because they deal with lending money to government contractors they are able to give higher interest rates. Now, the government contracts are not limited to roads: sanitation projects, cremation grounds, electrical poles and underground cable laying, water supply etc, you name it. There is a lot of money that comes in from the government, and there is no need to mention the corruption involved when winning and honoring these contracts. These banks, unfortunately, are also key starting points of corruption. And when they go belly up, it is the common man who faces the brunt.

[anjan_c2007]

In any investment instrument if the promised returns are more than the market average, one needs to instantly become suspicious. Usually, such co-operative (which go bust and later turn un-co-operative) banks offer upto 10% annual interest or more on fixed deposits as on today. The most vulnerable depositors are retirees or those who could have lost their jobs. These categories of persons have a substantial amount of retirement/ life time earning money as their corpus and need to sustain themselves on the bank interest earnings. There is a third category of persons who simply look at those enticing interest rates to earn some more money. And another fourth category of persons are those who have close friends or relatives as staffers in such banks. Such staffers canvas for more deposits on behalf of their employers to these close friends/relatives who also succumb and park their money.

We need to use common sense and also our sixth sense not to succumb to the multiple risks that come as a baggage with such banks.

[GTO]

Originally Posted by VaibhaoT

My parents have good chunk of their savings in local co-operative bank. In last 10 years, I attempted multiple times to move funds to nationalize bank, but I could not convince them. Local bank gives them 1% extra & that's enough for them to take the risk unfortunately.

I know what you are saying, man, and all parents are the same .

As Indians, we will always go for the best deal. 1% higher interest rate on the regular 6.5% (example) might sound like a lot. But 1% on a 5-lakh rupee FD is just 5000 more per year. That's like a full tank of petrol or a dinner at a really nice place. 1% on a 10-lakh FD is Rs 10k per year.

Even less after paying income tax. Once put in this perspective, does anyone want to take the risk for that 1% extra? Give me 1% less at an almost 100% safe bank like SBI. The odds of you losing money in SBI are probably the same as one being fatally struck by lightning in Bombay right now.

[Janus]

Originally Posted by Fx14

In this case, it was a Scheduled Bank. You can zoom in on the name board / banner in the last photo of your OP for confirmation.

Does anyone know the advantages of a SCB (Scheduled Commercial Bank), other than the bank being listed in the second schedule of RBI Act, 1934 ?

It's about time the government brings in a new law, there are so many acts from pre-independence till about 1980.

Negotiable Instruments Act, 1881,
Reserve Bank of India (RBI) Act, 1934,
Banking Regulation Act, 1949,
State Bank of India Act, 1955,
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970,
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.

[Fuldagap]

Originally Posted by GTO

I know what you are saying, man, and all parents are the same .

When my father retired, he had to open an account with SBI for pension. The full and final was also supposed to be transferred to his SBI account.

I was working in a bank then and he asked me much before what to do with the money. He casually told me to transfer all the money to my account and put it into equity. I had to convince him a lot how it does not work like that and he had no clue what equity really is.

I advised him to simply put the money in SBI or another public sector bank which had a good return on a 10 year FD. He agreed.

When after sometime he visited the SBI branch, the branch head being a known of his fully convinced him to put the entire amount into equity, part in stocks, part in MFs. The branch head even tailored a portfolio for him. Both of them went ahead and decided to put all of the money in MFs through that branch.

Luckily, I got to know of this in time and spoke over the phone with the manager while my father was with him. I had to convince my father a lot and the manager to not take risk with the retirement amount and also had to discuss about the potentialities of the portfolio. Seeing my adamancy first the branch manager gave up and then my father and the money got parked for a 10 year period into 2 separate FDs. Still a win for that branch, it contributed to the FD base.

After I visited home after a couple of months I made a virtual portfolio of the MF portfolio that the branch manager had previously proposed with the effective date being the one with the FDs.

I regularly updated my father how bad the virtual portfolio did year on year and when covid came, it was bleeding red. Then he was fully convinced that for us and for that retirement amount, putting it into FD was better than the risk that MFs or stocks pose.

It is really difficult to convince parents when such 'bankers' are their trusted friends.

[Tucker48]

Originally Posted by Gaur

My Father has one of his business related current account and a savings account with some FD's in this bank which is stuck now. The total amount is significantly over the DICGC limit and as per my understanding both the accounts will be considered as a single entity and will cover max 5lac, at this moment we can just wait and watch.

As per my understanding, these will be considered as 2 seperate accounts. Multiple accounts of one type are considered as a single entity.

[vaibhav_a_a]

Originally Posted by Janus

Does anyone know the advantages of a SCB (Scheduled Commercial Bank), other than the bank being listed in the second schedule of RBI Act, 1934 ?

Scheduled banks are governed by RBI norms such as CRR, also they park their CRR with RBI which means there is an actual CRR. Hence, there is some cushion from a run on the bank. Again, this is only relative to unscheduled banks.

[I googled this bit] - shocked to learn there are over 1000 non-scheduled banks in India who don't follow RBI guidelines.

[Aakash118]

We have a good amount in one local bank which changed it’s position from a co operative bank to a small finance bank a couple of years ago. Does that make it safer? Or should we shift our amount to some other major bank?

[vaibhav_a_a]

Originally Posted by Aakash118

We have a good amount in one local bank which changed it’s position from a co operative bank to a small finance bank a couple of years ago. Does that make it safer? Or should we shift our amount to some other major bank?

If I were you I'd not keep any major amount with an SFB, MFI or even an NBFC outside of the likes of the top 3 - m&m, bajaj, shriram.

This has to do with deteriorating asset quality in MFI space, excessive co-lending and general slowdown. It's entirely possible that nothing happens in the next two years, but its better to be safe than sorry.

Pls look up MFI sector challenges and the regularity with which nbfcs are hit with fines and cancellations by RBI.

On another thread I had posted about the restrictions on 4 nbfcs placed by RBI last October. Since then those have been lifted. Now only last week one of them Asirvad Microfin (subsidiary of mannapuram) breached debt covenants! I haven't checked in detail if bond holders were hit but it is the scary scenario all fixed income investors dread.

Remember return of capital is more important than return on capital when it comes to fixed income.

[ZenMaster]

Originally Posted by GTO

Unlike the other scam banks (PMC & Yes), this was a different kind of theft. In fact, it was as oldschool as the style can get. The managers & employees stole hard cash from the bank vault

My big money is only parked with large PSU banks (SBI and the like). No one ever lost money keeping it parked in a BOI or SBI.

My mantra is to always park your Big Money only in Banks that the govt. cannot afford to fail. There is no better candidate for this than SBI because it is the government banker i.e. No one in the govt. gets paid if SBI fails! If SBI ever fails it means India itself would be a failed state by then. At that point, I guess it no longer matter how many Rupees I have . Other large PSU banks are also good options.

If we set aside people with poor credit or small-scale business, most People despite all their good intentions and knowledge are attracted to these Small Finance or Co-operative banks due to greed. They fall for the higher interest rates these banks offer and invest all their life saving with them. Many of them being retirees who put all their life saving and especially their Superannuation/Retiral benefits into high(er) interest FDs without recognising the risks. For those who are not aware - A bank is a bank is a bank.

This thread would also be a good place to bring to everyones attention to the latest money-pit - Apps offering FD facilities for "UPTO 9.5%" interest or whatever.
I've been getting ads for this all over Youtube.

Even UPI apps are jumping on this bandwagon. Spend 5 minutes for due diligence and you will find out that these "FDs" are done with such Shady Small-Finance Banks.

Attaching a screenshot just for reference from one of the newer UPI apps offering (high interest FD)


This is probably how the new apps fund all the "Instant Pre-approved Personal Loans" doled out by them nowadays.

Unless you have money lying around with which you are okay to experiment and don't mind losing, please don't fall for these things and keep your spread out in trust worthy banks and assets.

[wheelspinner]

Mainly because they are slightly more lenient in giving loans to the lower income groups like small traders, workers and farmers. Cooperative banks were basically started to serve local communities and give loans to the members, like smaller traders. Gradually they grow a reputation through word of mouth.

They are also more corrupted, and don't have high standards. So there is a higher chance they engage in fraudulent activities.

[Lalvaz]

Interesting thread, and sad to see history repeat so often, with so many coop banks biting the dust. My sympathies with the depositors of New India Bank. RBI has a lot to answer here, but simply won't. Anyways, I see some people questioning why ppl keep funds in coop banks. I can list a few:

1) Coop housing societies have to compulsorily park some funds in coop banks.
2) The interest earned on FD's therein is exempt from tax u/s Section 80P for Coop societies.
3) The timings of coop banks is longer than regular nationalized and private banks
4) Loans are easily disbursed as compared to other banks
5) Interest rate is higher by 1% (Many ppl park much more than 5 lacs, We personally used to keep 15 lacs to ensure payout of interest for some specific purpose)

Interestingly PMC had funds even from the RBI employees credit society parked there. Also gurudwaras parked funds there, cos they trusted it, since it was originally founded by a sikh and the community was badly devastated with the failure of this bank.

Some of the very prominent coop banks are Saraswat Coop bank, Cosmos Coop bank, MSC, Shamrao Vithal etc. I shudder to think what will be the state of the depositors if these go bust. Having burnt my fingers, I would strongly advise everyone to keep less than 5 lacs in ANY coop bank and move to nationalized banks only.

[blackwasp]

Thanks a lot for this post @ Ripcord09!

While yes, there are many downsides to co-op banks, if done right, they are very good in terms of service.

My primary bank (current account) is at Model Co-Op Bank. Based primarily in Mumbai and surrounding suburbs, I'm very happy with their service.

Initially, the bank was used for payment of my school fees. Mom being a teacher in the same school was asked to open a salary account there.

When I stared my business back in 2019, I went ahead with the same bank due to the ease of opening an account and the low minimum balance requirement. Compared to other banks like HDFC, ICICI and SBI, they have the lowest fees. The staff is friendly, they get work done over the phone / email, no call waiting / IVR - call the bank and a person picks up the phone. Incase of a delay or some other issue for emi, they don't charge exorbitant late fees. If you want to close a loan, it's simple as well. Loans for smaller amounts are handled at the branch level itself resulting in a quicker turnaround.

The first vehicles - be it my van for detailing or the initial 5 cars picked up for my cab fleet - were first financed by different Co-operative banks. They were the ones who gave me the initial jump-start and for that I'm always thankful to them.

That said, I understand the limitations of the them as well and hence as my business grows, I started an account in SBI recently. Couple of years back, a poor experience with ICICI bank ensured that I completely move away from them.

FYI, here's my Co-Op bank's progress:


The numbers might not match the bigger banks, but they are solid none the less.