Saraswat Bank Merger: What Went Wrong with Fraud-Hit New India Co-operative Bank

In a major move to stabilise the urban cooperative banking space, Saraswat Cooperative Bank has initiated a proposal to merge with the troubled New India Cooperative Bank. 

The move comes after serious financial irregularities and fraud concerns led to the RBI stepping in with stringent restrictions.

₹122 Crore Scam: What Went Wrong with India Co-operative Bank? 

Let’s understand the complete episode step-by-step

2019–2020: Seeds of Fraud

• Hitesh Mehta, then General Manager and Accounts Head of New India Co-operative Bank, begins exploiting his unrestricted access to the safes of the Prabhadevi and Goregaon branches.
• Cash limits in safes were unusually high up to ₹20 crore at a time with minimal oversight, making them easy targets.

2020–2024: The Scam Snowballs

• Mehta allegedly physically removes cash in bags from the safes, totalling ₹112 crore from Prabhadevi and ₹10 crore from Goregaon.
• These funds were diverted through real estate developer Dharmesh Paun and then moved into a web of shell companies, fake vendors, and property deals to make the cash trail untraceable.
• The fraud continues under the radar, with internal checks either ignored or manipulated.

Feb 2025: RBI Inspection Triggers Alarm

• On February 12, 2025, a routine RBI inspection at the Prabhadevi branch revealed an alarming cash shortfall of ₹112 crore.
• The next day, the Goregaon branch was also found to be short by ₹10 crore, taking the total to ₹122 crore.
• RBI immediately informs Mumbai’s Economic Offences Wing (EOW) and restricts the operations of the bank.

Modus Operandi: How It Was Done

1. Cash Withdrawal in Bags: Cash physically taken out by Mehta from bank safes with no dual custody checks or digital audit trails.
2. Real Estate Conduits: Cash routed to Dharmesh Paun, who invested it into real estate or used it to purchase fake invoices from shell companies.
3. Fake Entities and Circular Transactions: Shell companies were created or used to show transactions on paper that justified where the money went, but in reality, it was simply a laundering loop.
4. Internal Lapses:
   • No dual authorisation for high-value cash access.
   • Lack of timely audits or independent cash verification.
   • The internal board is either negligent or complicit.

Impact on the Bank and Depositors

• RBI imposes strict withdrawal limits initially capped at ₹25,000 per depositor.
• The entire board is suspended, and a temporary administrator is appointed.
• RBI instructs a forensic audit to trace fund flow and assess internal failures.

Merger Talks Initiated

• Talks with Saraswat Co-operative Bank begin to safeguard depositor interests.
  
   
• A merger is proposed, expected to be finalised by August–September 2025, post-due diligence and approval.

Saraswat Bank Steps in with Revival Strategy

Saraswat Bank, India’s largest urban cooperative bank with a legacy of over 100 years, has taken up the challenge of absorbing NICBL’s operations. With 312 branches, ₹91,814 crore total business and a net profit of ₹518.25 crore as of March 31, 2025, Saraswat has the financial resilience to manage the merger. The Bank also maintains 2.25% gross NPAs and zero net NPAs for the third year running.

The merger aims to preserve depositor interests, streamline operations and stabilise NICBL’s functioning under a stronger financial framework.

Read More: Saraswat Bank to Merge with New India Co-operative Bank, Ensuring Full Depositor Protection!

Past Successes Offer Hope for NICBL’s Future

This is not Saraswat Bank’s first experience in rescuing distressed cooperative banks. It has previously integrated Maratha Mandir Cooperative Bank, Mandvi Cooperative Bank and Annasaheb Karale Janata Sahakari Bank. These mergers collectively protected over 800,000 depositors and boosted business volumes from ₹1,900 crore to ₹9,200 crore in five years.

With a proven revival strategy and regulatory backing, Saraswat Bank now seeks shareholder and RBI approval to carry out the NICBL merger on full scale.

Conclusion

New India Cooperative Bank's collapse stemmed from internal fraud, poor management and eroded financial health, leading to RBI restrictions. Saraswat Bank’s proposed merger seeks to protect depositors, restore operational confidence and revive the troubled bank through strategic consolidation. The coming months will determine how successfully this transition unfolds under regulatory supervision.

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