Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
18 Nov 2005
Case Brief
On November 17, 2005, the Reserve Bank of India rejected the licence application of Kotagiri Co-operative Urban Bank Ltd., Kotagiri, Tamil Nadu. RBI said the bank had ceased to be solvent, its financial position had deteriorated over time, and all efforts to revive it had failed. The bank had earlier been advised to go out of the purview of the Banking Regulation Act, 1949 (AACS), but had not done so, and a statutory inspection showed continued deterioration, including negative capital and reserves. After issuing a show cause notice under Section 22 and finding no viable revival plan, RBI rejected the licence in order to protect depositors’ interests and requested winding-up and appointment of a liquidator. The release also states that, consequent to the rejection, the bank is prohibited from carrying on banking business, including acceptance and repayment of deposits.
Why RBI Acted
The Reserve Bank of India rejected the licence application of Kotagiri Co-operative Urban Bank Ltd., Kotagiri, Tamil Nadu on November 17, 2005 because the bank had ceased to be solvent, its financial condition had deteriorated materially, and efforts to revive it had failed. The RBI noted that the bank was unable to repay deposits, had not made progress on earlier advice to come out of the purview of the Banking Regulation Act, 1949 (AACS), and that statutory inspection revealed further deterioration and negative realisable value of paid-up capital and reserves. A show cause notice had been issued under Section 22 of the Act, and after the bank failed to demonstrate a viable revival plan, RBI rejected the licence in the interest of depositors and requested the Registrar of Co-operative Societies, Chennai to initiate winding-up and appoint a liquidator.
Operating Impact
The bank cannot carry on banking business, including accepting or repaying deposits, and liquidation proceedings are to begin. Depositors’ claims will be addressed through the liquidation process, with DICGC insurance coverage up to Rs. 1,00,000 per depositor. The action primarily affects the bank and its depositors.
Regulatory Basis
- Section 22 of the Act, ibid
- Section 35A of the Act, ibid
- Section 5(b) of the Act, ibid
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 17 Nov 2005
- Effective From
- 17 Nov 2005
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank