Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
4 Feb 2009
Case Brief
The Reserve Bank of India cancelled the banking licence of Ajit Sahakari Bank Limited, Pune, Maharashtra, after concluding that the bank had ceased to be solvent and that all efforts to revive it had failed. RBI noted that the bank’s financial condition had sharply deteriorated, with statutory inspections showing impairment and then severe deterioration, and that the bank had not submitted any concrete revival or merger proposal. The bank’s reply to the show-cause notice under Section 22 of the Banking Regulation Act was found unsatisfactory. RBI also recalled that the bank had earlier been placed under all-inclusive directions under Section 35A with a withdrawal cap of Rs. 1,000, and that a requisition had been issued for supersession of its board. Consequent to licence cancellation, RBI requested the Registrar of Co-operative Societies, Maharashtra to initiate winding up and appoint a liquidator. The release states that depositors’ repayment would be subject to the Deposit Insurance and Credit Guarantee Corporation scheme, up to the prescribed ceiling.
Why RBI Acted
RBI cancelled the licence of Ajit Sahakari Bank Limited, Pune after concluding that the bank had ceased to be solvent, efforts to revive it in consultation with the Government of Maharashtra had failed, and depositor uncertainty was causing inconvenience. The statutory inspection as on March 31, 2008 showed severe deterioration in the bank’s financial position; earlier inspection had also indicated impairment. The bank had been placed under all-inclusive directions under Section 35A with a withdrawal ceiling of Rs. 1,000, and a requisition had been sent for supersession of the Board. RBI’s show-cause notice under Section 22 was replied to unsatisfactorily, and no concrete revival or merger proposal was forthcoming, leading RBI to cancel the licence in the interest of depositors and initiate winding-up/liquidation proceedings.
Operating Impact
The bank can no longer carry on banking business, including accepting or repaying deposits, and liquidation proceedings are to begin. Depositors will be paid subject to deposit insurance rules and limits, while the Registrar of Co-operative Societies is expected to move the winding-up process forward.
Regulatory Basis
- Section 35A of the Banking Regulation Act 1949 (As Applicable to Co-operative Societies)
- Section 110 A of the Maharashtra Co-operative Societies Act, 1960
- Section 22 of the Banking Regulation Act 1949 (As Applicable to Co-operative Societies)
- Section 5(b) of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 28 Jan 2009
- Effective From
- 28 Jan 2009
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank