Recorded RBI impact
Business restriction
Business restriction · Fresh imposition
Published by RBI
4 Jun 2019
Case Brief
The Reserve Bank of India, by directive dated May 29, 2019, placed Kerala Mercantile Co-operative Bank Ltd., No. 2626, Kozhikode, Kerala under Directions under Section 35A of the Banking Regulation Act, 1949 (AACS) read with Section 56. Under the order, each depositor may withdraw no more than ₹2,000 from every savings bank, current account, or other deposit account, subject to stipulated conditions. The bank is also barred, without prior written approval of RBI, from granting or renewing loans and advances, making investments, incurring liabilities including borrowings and acceptance of fresh deposits, disbursing payments, entering into compromises or arrangements, and selling or disposing of assets except as specifically notified. The directions are effective for six months from the close of business on June 4, 2019, and RBI stated that the order should not be construed as cancellation of the banking licence.
Why RBI Acted
Vide directive dated May 29, 2019, RBI placed Kerala Mercantile Co-operative Bank Ltd. under Directions under Section 35A of the Banking Regulation Act, 1949 (AACS) read with Section 56. Depositors can withdraw only up to ₹2,000 from each savings/current/other deposit account, and the bank cannot, without prior written RBI approval, grant or renew loans and advances, make investments, incur liabilities including borrowings and acceptance of fresh deposits, disburse payments, enter into compromises/arrangements, or sell/transfer/dispose of assets except as permitted in the directions. The directions remain in force for six months from the close of business on June 4, 2019. RBI clarified this should not be construed as cancellation of banking licence and that the bank will continue banking business with restrictions till its financial position improves.
Operating Impact
Depositors face a strict withdrawal cap of ₹2,000 per account, and the bank must seek prior RBI approval for a wide range of ordinary business activities including lending, deposit-taking, borrowing, payments, compromises, and asset disposals. The bank continues to operate, but only within these constraints until the directions expire or are modified by RBI.
Regulatory Basis
- Sub-section (1) of Section 35 A of the Banking Regulation Act, 1949 (AACS) read with Section 56 of the said Act
Action Facts
- Primary Impact
- Business restriction
- Order Date
- 29 May 2019
- Effective From
- 4 Jun 2019
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank