First, there are preventive steps to take
Most cooperative banks do run the risk because they are not subject to the same level of stringent controls as scheduled commercial banks are. You need to keep this in mind when you open an account with a cooperative bank. Quite often, people open accounts with cooperative banks purely because the rates of interest offered are higher. When you place money in a bank, safety of principal is more important so decide accordingly.
If you are going to keep a large sum in your bank, ideally spread it across more banks. Apart from spreading your risk, it also has another advantage, which we shall discuss later. The bigger chunk of your banking funds should still remain with large private banks and PSU banks, where the risk of such deposit freeze is much lower.
An important rule is to keep a tab on what is happening to you banker. For example, in the case of Yes Bank, the problems were visible for quite some time in the form of falling stock prices. Stock prices are a great lead indicator of likely problems and that is why you should prefer a listed bank. Once you see these signals, transfer your funds out at the first opportunity.
But, what to do if I am stuck with frozen deposits
That is a more practical problem. In the case of Yes Bank in 2020 or Global Trust Bank in 2004, the problem was resolved quickly as RBI coordinated the rescue of these banks. However, cases like PMC Bank have been more prolonged. Normally, when the deposits are frozen, the deposit holders are allowed to withdraw a small sum on a regular basis. There are two challenges that it creates viz. short term liquidity and long term recovery of deposits. Let us look at these two aspects separately.
Short term liquidity is the pressing issue, especially if a chunk of your savings is in that particular bank. Apart from the limits imposed by the RBI, there is a larger problem you will face. For example, if you have deposits and loans with the same bank, then your liquidity available will be calculated by adjusting the full loan against your deposit. That could exacerbate your problem.
The second issue is, what happens to your money? Fortunately, RBI has its own in-built checks and balances to prevent panic run on deposits. Normally, the RBI will not allow any bank of significant size to default on deposits as it endangers the entire banking system. Unless your bank is a cooperative bank or a small private bank, this will not be an issue. In the event of default, you still have insurance of up to Rs5lac per bank. This applies to all the savings and FD accounts in a bank. If your funds are spread across 5 banks, then your total insurance cover will be Rs25lac. That is an important reason to spread your funds across multiple banks.
Keep the pressure on so that the issue is not sidelined
Normally, when bank deposits get frozen, the choices in front of you are quite limited apart from ensuring that you take out funds to the extent permitted. However, it is essential for depositors to come together, form a pressure group, and keep the pressure on in a number of ways. For example, constant coverage in the press and media will ensure the matter is escalated to the highest echelons of power. Additionally, it is also essential to keep writing to the RBI and to the Ministry of Finance about the situation at the grassroots level so that the gravity of the problem is not lost sight of. Above all, keep the local MLAs and MPs under whose constituency most of the depositors fall in the loop. For most of them, such unrest among depositors has larger political consequences and they would take their own efforts to ensure the matter is escalated.
In the case of possible deposit freeze, the best steps are those that are preventive in nature. The moment the freeze is placed, your choices become limited and time works against you. At least, in this particular case, prevention is substantially better than cure.