Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
10 Oct 2008
Case Brief
RBI issued an order cancelling the licence of Primary Teachers Co-operative Credit Bank Ltd., Nipani, Karnataka, after business hours on October 06, 2008. The bank had ceased to be solvent, inspections had shown a worsening financial position, and revival attempts with the Government of Karnataka had not succeeded. RBI also noted that the bank had not filed police complaints regarding frauds of Rs.109.99 lakh allegedly perpetrated by its ex-CEO despite being advised to do so. The bank had earlier been placed under Section 35A directions restricting lending, investments, borrowings, fresh deposits, and deposit withdrawals. After considering all options, RBI cancelled the licence in the interest of depositors and requested the Registrar of Co-operative Societies, Karnataka to initiate winding up and appoint a liquidator. As a result, the bank is prohibited from carrying on banking business, including accepting and repaying deposits, and depositors may seek insured repayment under the DICGC framework.
Why RBI Acted
The Reserve Bank of India cancelled the licence of Primary Teachers Co-operative Credit Bank Ltd., Nipani, Karnataka, after concluding that the bank had ceased to be solvent and that all efforts to revive it in consultation with the Government of Karnataka had failed. RBI noted deteriorating financial condition across successive inspections, failure to lodge police complaints for frauds amounting to Rs.109.99 lakh allegedly perpetrated by the ex-CEO despite RBI advice, and continued uncertainty causing inconvenience to depositors. The bank had earlier been placed under Section 35A directions prohibiting sanction/renewal of loans and advances, investments, borrowings, and acceptance of fresh deposits, with a withdrawal cap of Rs.1000 per depositor. A show-cause notice for cancellation was issued on June 25, 2008, and RBI ultimately took the extreme measure of cancelling the licence in the interest of depositors; liquidation proceedings were to follow.
Operating Impact
The bank can no longer conduct banking business or accept/repay deposits. Liquidation proceedings are to begin, and insured depositors will move into the DICGC payout process subject to the statutory ceiling; other creditors and stakeholders will be affected through winding up.
Regulatory Basis
- Section 35A of the Act
- Section 5(b) of the Banking Regulation Act, 1949(AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 6 Oct 2008
- Effective From
- 6 Oct 2008
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank