Cooperative Banks and the PMC Crisis

Urban cooperative banks serve small businesses, traders and households, especially in towns and cities. There are over 1,500 such banks.

Dual regulation problem

For decades, cooperative banks faced dual control:

• The RBI regulated banking functions.
• State cooperative registrars controlled management and governance.

This split made supervision weak, and some banks were run by politically connected boards.

The PMC Bank crisis

In September 2019, the RBI restricted withdrawals at Punjab and Maharashtra Cooperative Bank (PMC) after discovering that a large share of its loans had gone to a single real estate group, HDIL, and had been hidden using thousands of fake accounts. Depositors, many of them retirees, couldn’t access their savings.

PMC was later merged into a new small finance bank, Unity Small Finance Bank, in 2022.

Regulatory reforms

• In 2020, Parliament amended the Banking Regulation Act to give the RBI stronger powers over cooperative banks, including governance and management.
• Deposit insurance coverage per depositor was raised from 1 lakh to 5 lakh rupees in 2020, and a 2021 law ensured depositors of stressed banks get insured amounts within 90 days.

Other failures

Several other cooperative banks faced problems, and in 2025, the RBI imposed restrictions on New India Co-operative Bank after irregularities.

The value of co-op banks

Despite problems, many cooperative banks serve local needs well, with personal relationships and knowledge of local borrowers.