Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
13 Nov 2009
Case Brief
The Reserve Bank of India cancelled the banking licence of Rajlaxmi Nagari Sahakari Bank Ltd., Dhule, District Dhule, Maharashtra, with effect after the close of business on October 27, 2009. RBI said the bank had ceased to be solvent, efforts to revive it in consultation with the Government of Maharashtra had failed, and the depositors were being inconvenienced by continued uncertainty. A statutory inspection as of March 31, 2009 had revealed that the bank’s position was precarious. RBI had also earlier issued Section 35A directions restricting the bank’s operations and had issued a show-cause notice on May 12, 2009 asking why the licence should not be cancelled. After examining the reply and finding no viable turnaround plan or prospect of meeting regulatory prescriptions, RBI took the extreme measure of cancelling the licence and requested the Registrar of Co-operative Societies, Maharashtra to order winding up and appoint a liquidator.
Why RBI Acted
RBI’s statutory inspection found the bank’s financial position precarious. The bank had ceased to be solvent, efforts to revive it in consultation with the Government of Maharashtra had failed, and after the show-cause notice the bank did not present any viable plan of action for revival or to meet the required regulatory prescriptions. On that basis, and in the interest of depositors, RBI cancelled the bank’s licence and requested the Registrar of Co-operative Societies, Maharashtra to initiate winding up and appoint a liquidator. RBI also noted that the bank had earlier been placed under Section 35A directions restricting its operations.
Operating Impact
The bank is prohibited from carrying on banking business, including accepting and repaying deposits, and liquidation proceedings will begin. Depositors’ claims will be processed subject to the Deposit Insurance Scheme, up to the usual DICGC ceiling of Rs. 1,00,000 per depositor, while the Registrar of Co-operative Societies is expected to initiate winding up and appoint a liquidator.
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
- 27 Oct 2009
- Effective From
- 27 Oct 2009
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank