Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
7 Nov 2008
Case Brief
The Reserve Bank of India cancelled the banking licence of Nutan Sahakari Bank Ltd., Vadodra, Gujarat after the close of business on November 05, 2008. RBI said the bank had become insolvent, repeated efforts to revive it in consultation with the Government of Gujarat had failed, and the continued uncertainty was inconveniencing depositors. Earlier inspections had shown the bank’s financial position was impaired and later precarious. RBI had previously restricted its operations, including a cap on deposit withdrawals, and had issued a show-cause notice asking why its licence should not be cancelled. After examining the bank’s reply and finding no viable revival or merger plan, RBI took the extreme step of cancelling the licence in the interest of depositors. The Registrar of Co-operative Societies, Gujarat was requested to order winding up and appoint a liquidator. The release also states that, upon cancellation and liquidation, the bank is prohibited from carrying on banking business, including acceptance and repayment of deposits, and depositors would be paid subject to the Deposit Insurance Scheme up to the prescribed ceiling.
Why RBI Acted
The Reserve Bank of India cancelled the licence of Nutan Sahakari Bank Ltd., Vadodra with effect after close of business on November 05, 2008. RBI said the bank had ceased to be solvent, efforts to revive it in consultation with the Government of Gujarat had failed, and depositors were being inconvenienced by continued uncertainty. The statutory inspections showed impaired and then precarious financial position, and the bank failed to present a viable plan of action for revival and/or merger. RBI also noted that, consequent to cancellation, the bank is prohibited from carrying on banking business, including acceptance and repayment of deposits, and liquidation proceedings were to follow.
Operating Impact
Nutan Sahakari Bank Ltd. can no longer conduct banking business or accept/repay deposits, and liquidation proceedings will be initiated. Depositors will have to claim under the deposit insurance framework, subject to the applicable ceiling and liquidation process. The action affects all depositors and the bank’s counterparties, with winding-up and appointment of a liquidator to follow.
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
- 5 Nov 2008
- Effective From
- 5 Nov 2008
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank