Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
4 Jul 2006
Case Brief
The Reserve Bank of India cancelled the licence of Purna Nagari Sahakari Bank Ltd., Purna, Dist. Parbhani (Maharashtra) after concluding that the bank had ceased to be solvent and that all efforts to revive it had failed. RBI noted that the bank’s financial position was precarious, deposits were getting eroded, and the realizable value of paid-up capital and reserves was negative. The release also records prior Section 35A directions, a show-cause notice, and repeated inspections that confirmed further deterioration. RBI acted to protect depositor interests and requested the Registrar of Co-operative Societies, Maharashtra to initiate winding up and appoint a liquidator. Consequent to the cancellation, the bank was prohibited from carrying on banking business, including acceptance and repayment of deposits, and depositors would be dealt with under the Deposit Insurance Scheme up to the applicable ceiling.
Why RBI Acted
RBI cancelled the banking licence of Purna Nagari Sahakari Bank Ltd., Purna, Dist. Parbhani (Maharashtra) because the bank had ceased to be solvent, revival efforts in consultation with the Government of Maharashtra had failed, and the depositors were being inconvenienced by continued uncertainty. The release says inspection as of September 30, 2004 showed a precarious financial position; directions under Section 35A were issued on February 1, 2005; a show-cause notice was issued on March 29, 2005; and further inspection as of June 30, 2005 revealed deterioration, erosion of deposits, and negative realizable value of paid-up capital and reserves. Since the bank had no viable revival plan and prospects of revival were remote, RBI took the final step of cancelling the licence and initiating liquidation to protect depositors.
Operating Impact
The bank can no longer conduct banking business, including accepting or repaying deposits, and liquidation proceedings are to begin. Depositors will have their claims processed under the Deposit Insurance and Credit Guarantee Corporation scheme, subject to its terms and the Rs. 1,00,000 ceiling. The Registrar of Co-operative Societies, Maharashtra has been asked to wind up the bank and appoint a liquidator.
Regulatory Basis
- Section 35A of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies)
- Section 5(b) of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 1 Jul 2006
- Effective From
- 1 Jul 2006
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank