Risks Of Dealing With Co-operative Banks

wealthymattersCo-operative banks sometimes offer higher interests on FDs than PSU banks.This makes their deposits interesting when inflation remains high and investors are trying to grab the last paisa in returns.Moreover,when these banks are scheduled(Link),they offer the comfort of RBI supervision and deposit insurance.

However,parking your money in these banks,still carries a measure of risk,as can be seen in the Kapol bank case.Link.The money in your FDs might not be available as and when you need it.

Often the RBI merges weak cooperative banks with stronger ones.In such cases restrictions are imposed on transactions by the customers of the weak bank,to ensure that this weak bank doesn’t collapse.This can be a source of hardship,if you need to access your money urgently.

So always park only a part pf your corpus in any one co-operative bank.Also remember that the RBI makes allowances in case of real distress,but you will have to make your case before top management and wait for them to exercise their discretion.

Scheduled Co-operative Banks

wealthymattersIf you are tempted to chase bank deposit rates by investing in co-operative banks,make sure that they are scheduled.

Scheduled banks are those whose names have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934.RBI  includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.One such criterion is deposit insurance.So if you don’t have the skills and means of evaluating the strengths of co-operative banks,restrict yourself to only the scheduled ones to safeguard your investments.

You can get a list of Scheduled co-operative banks here:Link



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