High Court warns of crisis as cooperative banks struggle to return depositors' funds

KOCHI: High Court has warned of a serious situation if cooperative banks fail to return depositors' money. Justice Devan Ramachandran expressed concerns that granting exemption to a bank would set a precedent affecting future investors and pose a challenge to the state's financial system.

The plea of Pala Kizhathadiyur Service Cooperative Bank was considered, stating that even matured fixed deposits couldn't be returned due to the bank's losses. Depositors with outstanding deposits are demanding their funds back, citing the bank's crisis with stalled transactions.

The government counsel argued that banks are obligated to refund money upon depositors' demand, urging resolution at the highest levels. The petition was adjourned to the 11th for further consideration.

The court emphasized that this issue isn't isolated and impacts the entire cooperative sector. Non-payment of deposits triggers a remedy provision in cooperation rules, involving an arbitrator. The court reiterated banks' obligation to ensure depositors' money is returned.