The RBI has been cracking down on weak co-operative banks over the last few years. In 2020, the RBI cancelled permits of three co-operative banks and imposed restrictions on several other banks.

The Reserve Bank of India has imposed a Rs 1,000 withdrawal cap on the customers of Karnataka-based Deccan Urban Cool Bank, citing its financial position.

The bank cannot undertake any fresh business including giving new loans and taking fresh deposits, the RBI has said.

"Considering the bank's present liquidity position, a sum not exceeding Rs 1,000 (Rs One thousand only) of the total balance across all savings bank or current accounts or any other account of a depositor, may be allowed to be withdrawn, but are allowed to set off loans against deposits subject to the conditions stated in the above RBI directions," the RBI said.

However, 99.58 percent of the depositors are fully covered by the DICGC insurance scheme, the RBI said.

The government has raised the deposit insurance cover to Rs 5 lakh from Rs 1 lakh. Presenting the Budget 2021, finance minister Nirmala Sitharaman said customers of ailing banks would be able to access up to Rs 5 lakh of their deposits even if a bank is placed under moratorium. The Deposit Insurance and Credit Guarantee Corporation  Act, 1961 would be amended to create such a provision.

The RBI has been cracking down on weak co-operative banks over the last few years. In 2020, the RBI cancelled permits of three co-operative banks and imposed restrictions on several other banks.

In recent year, urban cooperative banks (UCBs), the bigger players in the cooperative banking universe, have seen a sharp decline in their loan and deposit growth. The collapse of UCBs like Punjab and Maharashtra Cooperative Bank (PMC Bank) has added to customers’ distrust.

According to RBI’s report on Trend and Progress of Banking in India, the deposits of UCBs grew by 3.5 percent in 2019-20 compared with 6.1 percent in the previous year. Loans and advances grew by just 0.8 per cent in 2019-20 compared to 8 percent in 2018-19. The borrowings grew by just 4.9 percent in FY20 compared with 39.2 percent in FY19. The reserves and surplus contracted by 9.2 percent compared with a growth of 5.6 percent in the previous fiscal.

Growth in deposits, which constitute 90 percent of the total resource base of UCBs, slipped in 2019-20 after a revival in the previous year. The average growth rate of deposits declined from 13.1 percent in the first decade of the consolidation drive to 8 percent during 2014-15 to 2019-20, in line with the growth in balance sheet size.