Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
9 Apr 2010
Case Brief
The Reserve Bank of India cancelled the licence of National Co-operative Bank Ltd., Kurnool, Dist. Kurnool, Andhra Pradesh, after concluding that the bank had repeatedly failed to comply with statutory requirements and had defaulted in repayment of deposits. RBI noted chronic non-submission of statutory returns since 2005, failure to produce audited balance sheets since 2005, and inability to furnish key records for statutory inspection, including trial balance, balance sheets, profit and loss accounts, NPA registers, discharged FDRs, and loan documents. The bank's Board was found ineffective, a show-cause notice issued in September 2009 was replied to unsatisfactorily, and no viable time-bound remediation plan was offered. RBI therefore took the extreme step of cancelling the bank's licence after close of business on April 7, 2010, and requested the Registrar of Co-operative Societies, Andhra Pradesh, to initiate winding up and appoint a liquidator. Consequent to the cancellation, the bank is prohibited from carrying on banking business, including acceptance and repayment of deposits, and depositors will be covered only to the extent available under the Deposit Insurance Scheme, subject to its terms and conditions.
Why RBI Acted
RBI cancelled the licence of National Co-operative Bank Ltd., Kurnool, after finding that the bank had defaulted in repayment of deposits, was a chronic defaulter in submission of statutory returns since 2005, and had failed to produce audited balance sheets since 2005. A statutory inspection also found that the bank could not provide records such as trial balance, balance sheet, profit and loss account, NPA register, discharged FDRs, and loan documents. The Board of Directors was described as ineffective and responsible for non-compliance, and the bank's reply to the show-cause notice was unsatisfactory. RBI stated that no comprehensive, realistic, time-bound action plan had been submitted to cure the serious deficiencies, and therefore cancelled the licence in the interest of depositors. The Registrar of Co-operative Societies was also requested to wind up the bank and appoint a liquidator.
Operating Impact
The bank must cease all banking business and proceed into liquidation. Depositors can no longer transact normally with the bank and will be repaid only subject to DICGC coverage and liquidation terms, with repayment capped at Rs. 1,00,000 per depositor under the deposit insurance scheme. The Registrar of Co-operative Societies is expected to move the winding-up process and appoint a liquidator.
Regulatory Basis
- Section 35 of the Banking Regulation Act 1949 (AACS)
- Section 5(b) of the Banking Regulation Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 7 Apr 2010
- Effective From
- 7 Apr 2010
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank