KOCHI: The collapse of Irinjalakuda Town Co-operative Bank (ITCB), one of Kerala’s prominent urban co-operative banks regulated by the Reserve Bank of India (RBI), has exposed deep cracks in the state’s cooperative credit ecosystem.
The bank’s latest annual report paints a stark picture: its capital adequacy ratio (CRAR) has plunged to –0.19 per cent, down from 5.86 per cent a year earlier, effectively wiping out its capital base.
Gross NPAs have surged to Rs195.99 crore, or 38.9 per cent of total advances, while net NPAs stand at Rs154.97 crore (30.8 per cent). A net loss of Rs45.22 crore in FY2024-25 has pushed accumulated losses to Rs74.33 crore, leaving the institution technically insolvent.
Auditors have highlighted a “material uncertainty that may cast significant doubt on the ability of Irinjalakuda bank to continue as a going concern,” citing unreconciled balances, non-compliance with asset-classification norms, and weak internal controls – signs of structural decay rather than isolated lapses.
In response, the RBI first imposed lending and deposit restrictions in July 2025 and, by October, superseded the board, appointing an administrator for one year. The regulator’s intervention underscores that the problem is one of solvency, not liquidity.
Solvency under question
Some within the cooperative sector have suggested that the bank could recover part of its losses by selling pledged collateral. Analysts, however, point out that auction recoveries are slow, uncertain, and already reflected in provisioning.
“Even a few successful recoveries won’t repair a negative CRAR,” said a senior cooperative-banking analyst. “Without fresh capital or a merger, the institution cannot regain solvency.”
That leaves three realistic paths: a bail-out through fresh capital from the state or a stronger bank; a merger with a solvent urban co-operative bank; or, if neither is viable, orderly winding-up with deposit-insurance pay-outs of up to Rs5 lakh per depositor.
A “bail-in,” where losses are imposed on depositors, remains highly improbable given the cooperative structure.
The implications extend beyond Irinjalakuda. Kerala’s financial landscape is interwoven with over 15,000 cooperative societies, most operating as credit societies under state supervision rather than full-fledged banks.
Bank vs coop credit society
Several of these have already shown signs of stress, with investigations and liquidity shortages emerging across different districts.
The state’s already battered cooperative system could face further erosion of public confidence, as depositors often fail to distinguish between a bank and a society. Panic in one institution can quickly spread to others.
For policymakers, rescuing Irinjalakuda Bank is about more than saving a single institution. It is about stabilising faith in Kerala’s cooperative credit system, which still mobilises savings from millions.
Whether through recapitalisation, merger, or a systemic clean-up, the months ahead will determine if that faith can be restored – or if the Irinjalakuda collapse becomes a cautionary benchmark for the entire sector.
