Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
16 Dec 2008
Case Brief
The Reserve Bank of India cancelled the licence of Faizpur Janata Sahakari Bank Ltd., Faizpur, District Jalgaon, Maharashtra after finding that the bank had ceased to be solvent and that all attempts to revive it, in consultation with the Government of Maharashtra, had failed. RBI had previously conducted statutory inspections that indicated impaired financial health as of March 31, 2006 and further deterioration as of March 31, 2007. It had earlier imposed Section 35A directions restricting operations, including a ceiling of Rs. 1,000 on deposit withdrawals, and issued a show-cause notice on February 26, 2008. After considering the reply, RBI concluded that there was no viable revival plan and that the prospect of turnaround was remote. The licence was therefore cancelled after close of business on December 2, 2008, and the Registrar of Co-operative Societies, Maharashtra was asked to start winding up and appoint a liquidator. The bank is consequently barred from carrying on banking business, including acceptance and repayment of deposits, and depositors may claim insurance coverage subject to the DICGC terms and ceiling.
Why RBI Acted
RBI cancelled the banking licence of Faizpur Janata Sahakari Bank Ltd., Faizpur, District Jalgaon, Maharashtra after concluding that the bank had ceased to be solvent, efforts to revive it in consultation with the Government of Maharashtra had failed, and continued uncertainty was inconveniencing depositors. The release notes that statutory inspections as of March 31, 2006 and March 31, 2007 showed impaired and then further deteriorating financial condition; supervisory action had earlier been initiated and the bank was asked to improve recoveries and its financial position. RBI had issued a show-cause notice on February 26, 2008, but found no viable plan for turnaround or required regulatory prescriptions. RBI also requested the Registrar of Co-operative Societies, Maharashtra to initiate winding up and appoint a liquidator.
Operating Impact
The bank can no longer conduct banking business, accept deposits, or repay deposits as a going concern; liquidation proceedings are to begin. Depositors will have claims handled under the deposit insurance scheme, subject to the Rs. 1 lakh ceiling and usual conditions.
Regulatory Basis
- Section 35 A of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies)
- Section 5(b) of the Banking Regulation Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 2 Dec 2008
- Effective From
- 2 Dec 2008
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank