Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
16 Feb 2010
Case Brief
The Reserve Bank of India cancelled the licence of Chadchan Shree Sangameshwar Urban Co-operative Bank Ltd., Chadchan (Karnataka), 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. RBI had earlier placed the bank under restrictions, including Section 35A directions barring fresh deposits, borrowings, investments, and loans/advances, along with a withdrawal cap. After inspections revealed further deterioration and the show-cause reply did not present a viable revival plan, the RBI took the extreme step of cancelling the licence after the close of business on February 13, 2010. The Registrar of Co-operative Societies, Karnataka was asked to initiate winding-up and appoint a liquidator.
Why RBI Acted
Following statutory inspections (with reference to financial positions as of March 31, 2007, March 31, 2008 and March 31, 2009), the Reserve Bank found several disquieting features and a drastic deterioration in the bank’s financial position. Earlier operational instructions and Section 35A directions were imposed, including prohibitions on sanctioning/renewing loans and advances, making investments, borrowings and acceptance of fresh deposits, and a cap on withdrawals. A show-cause notice for cancellation of licence was issued on August 25, 2009, but the bank’s reply did not furnish any viable plan for revival. In view of insolvency, failed revival efforts, and depositor interest/public interest, the RBI cancelled the licence and requested winding up and appointment of a liquidator.
Operating Impact
The bank can no longer carry on banking business, including acceptance and repayment of deposits. Liquidation proceedings will begin, and depositors will be eligible to claim insured deposits up to the DICGC ceiling of Rs. 1,00,000 per depositor, subject to the liquidation process. Existing restrictions are superseded by the licence cancellation and winding-up process.
Regulatory Basis
- Section 35A of the Act
- Section 5(b) of the Banking Regulation Act, 1949(AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 13 Feb 2010
- Effective From
- 13 Feb 2010
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank