Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
1 Dec 2011
Case Brief
The Reserve Bank of India cancelled the licence of Bharat Urban Co-operative Bank Ltd., Solapur (Maharashtra) with effect from the close of business on November 25, 2011. RBI said the bank had ceased to be solvent, revival attempts in consultation with the Government of Maharashtra had failed, and the continued uncertainty was inconveniencing depositors. The release describes severe deterioration in the bank’s financial condition, including negative net worth, negative CRAR, high NPAs, and large losses. It also records non-compliance with sections 11(1), 22(3)(a), 22(3)(b) and 24 of the Banking Regulation Act, 1949 (as applicable to co-operative societies), and states that the board was ineffective and had conducted the affairs of the bank in a manner detrimental to depositors’ interests. As no viable merger or restructuring plan was received, RBI took the extreme step of cancelling the licence and requested the Registrar of Co-operative Societies, Maharashtra to wind up the bank and appoint a liquidator. The release further notes that depositors may be eligible for insurance coverage up to Rs 1,00,000 under the DICGC scheme.
Why RBI Acted
RBI cancelled the licence of Bharat Urban Co-operative Bank Ltd., Solapur (Maharashtra) because the bank had ceased to be solvent, revival efforts had failed, and continued uncertainty was inconveniencing depositors. The release cites serious deterioration in financial indicators, including negative net worth, very high NPAs, erosion in deposits, and persistent losses. It also notes non-compliance with sections 11(1), 22(3)(a), 22(3)(b) and 24 of the Banking Regulation Act, 1949 (as applicable to co-operative societies), that the board was ineffective and responsible for the deterioration, and that no viable merger/revival/restructuring plan was received. RBI therefore cancelled the banking licence and asked the Registrar of Co-operative Societies, Maharashtra to initiate winding up and appoint a liquidator.
Operating Impact
The bank must stop all banking business and proceed into liquidation through the Registrar of Co-operative Societies and appointed liquidator. Depositors may recover insured amounts up to Rs 1,00,000 subject to DICGC terms and conditions, while any amount beyond that will depend on the liquidation process.
Regulatory Basis
- Section 35 A of the Banking Regulation Act, 1949
- Section 35 of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies)
- sections 11(1), 22(3)(a), 22(3)(b) and 24 of the Act
- Section 5(b) of the Act
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 25 Nov 2011
- Effective From
- 25 Nov 2011
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank