Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
26 Jun 2006
Case Brief
The Reserve Bank of India cancelled the licence of Bangalore Mercantile Co-operative Bank Ltd., Bangalore, with effect after the close of business on June 23, 2006. RBI said the bank had ceased to be solvent, revival attempts with the Government of Karnataka had failed, and the bank's position had deteriorated further over successive inspections. The release records that the bank's net worth remained negative, deposits had eroded substantially, and the bank failed to act on its stated intent to convert into a co-operative credit society. It also refers to earlier findings that the Board of Directors had flouted normal banking practices and violated RBI guidelines, directives and exposure norms, which had already led to supersession of the board and appointment of an Administrator. After show-cause proceedings and review of the bank's replies, RBI cancelled the licence in the interest of depositors and requested the Registrar of Co-operative Societies, Karnataka, to initiate winding up and appoint a liquidator. The bank is consequently prohibited from carrying on banking business, including acceptance and repayment of deposits; insured depositor payments under the DICGC framework will be triggered through liquidation.
Why RBI Acted
RBI cancelled the licence of Bangalore Mercantile Co-operative Bank Ltd., Bangalore, after concluding that the bank had ceased to be solvent and that efforts to revive it in consultation with the Government of Karnataka had failed. The release says the bank's financial position kept deteriorating, the net worth remained negative, deposits eroded by 81.2%, and the bank did not take steps to convert into a co-operative society as it had indicated. It also notes prior scrutiny findings that the Board of Directors had flouted normal banking practices and violated guidelines/directives/exposure norms, leading earlier to supersession of the board and appointment of an Administrator. RBI had issued show-cause notices and, after considering the replies and all revival options, took the extreme measure of cancelling the licence in the interest of depositors. Consequent to cancellation, the bank is prohibited from carrying on banking business, including acceptance and repayment of deposits, and liquidation proceedings were to be initiated.
Operating Impact
The bank cannot conduct any banking business, accept deposits, or repay deposits as a going concern. Liquidation proceedings are to begin, and depositors will have claims through the winding-up process, with insured deposits repayable up to the statutory DICGC ceiling. The action directly affects the bank, its depositors, and the liquidator/registrar process.
Regulatory Basis
- Section 35 of the Act
- Section 35A of the Act
- Section 5(b) of the Banking Regulation Act, 1949(AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 23 Jun 2006
- Effective From
- 23 Jun 2006
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank