Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
12 Mar 2012
Case Brief
The Reserve Bank of India cancelled the licence of Krishna Valley Co-operative Bank Ltd., Kupwad, Sangli (Maharashtra) with effect from the close of business on March 5, 2012. RBI said the bank had ceased to be solvent, all revival efforts with the Government of Maharashtra had failed, and the uncertainty was causing inconvenience to depositors. The bank had earlier been placed under all-inclusive directions under Section 35A due to its precarious financial position, and its Board was found ineffective and responsible for deterioration in the bank’s condition; the Board was superseded and an Administrator appointed. Subsequent inspections revealed further deterioration, negative net worth, negative CRAR, 100% gross NPAs relative to gross advances, erosion in deposits, and non-compliance with statutory provisions including Sections 11(1), 18, 22(3)(a) and 22(3)(b). RBI also noted that the bank had not submitted any concrete revival plan or merger proposal and that its paid-up capital and reserves had negative realisable value. RBI therefore cancelled the licence, requested the Registrar of Co-operative Societies, Maharashtra to initiate winding-up and appoint a liquidator, and stated that deposit insurance payouts would begin subject to DICGC terms.
Why RBI Acted
RBI cancelled the licence of Krishna Valley Co-operative Bank Ltd., Kupwad, Sangli (Maharashtra) with effect from the close of business on March 5, 2012 because 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 says earlier Section 35A all-inclusive directions had been imposed from December 26, 2003 due to the precarious financial position, the Board was ineffective and had deteriorated the bank’s condition, and the Board was superseded with an Administrator appointed. A later statutory inspection found persistent violations, further deterioration, negative net worth, negative CRAR, gross NPAs at 100% of advances, erosion in deposits, and non-compliance with Sections 11(1), 18, 22(3)(a) and 22(3)(b) of the Act. The bank failed to provide any concrete revival or merger proposal and RBI concluded that revival prospects were remote, leading to cancellation under Section 22 and initiation of liquidation proceedings.
Operating Impact
The bank must cease carrying on banking business and enters liquidation proceedings. Depositors will look to DICGC coverage, up to the applicable ceiling and subject to scheme conditions, for insured amounts. The Registrar of Co-operative Societies, Maharashtra has been asked to issue winding-up orders and appoint a liquidator.
Regulatory Basis
- Section 22 of the Act
- Section 5(b) of the Act
- Section 35A of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies) [the Act]
- Sections 18 of the Act
- Section 11(1) of the Act
- Section 22(3)(a) of the Act
- Section 22(3)(b) of the Act
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 5 Mar 2012
- Effective From
- 5 Mar 2012
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank