Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
3 Feb 2009
Case Brief
On 22 January 2009, the Reserve Bank of India cancelled the licence of Sadhana Co-operative Bank Ltd., Ichalkaranji, District Kolhapur, Maharashtra. RBI said the bank had ceased to be solvent, earlier efforts to revive it in close consultation with the Government of Maharashtra had failed, and the ongoing uncertainty was inconveniencing depositors. RBI had earlier imposed all-inclusive directions under Section 35A on 4 September 2008, including a ban on fresh deposits and further lending and a cap on deposit repayment. After examining the bank’s reply to the show-cause notice, RBI found it unsatisfactory and decided to cancel the licence. RBI also requested the Registrar of Co-operative Societies, Maharashtra to initiate winding-up and appoint a liquidator. Following the cancellation, the bank is prohibited from carrying on banking business, including acceptance and repayment of deposits, and depositor claims will proceed under the Deposit Insurance Scheme subject to applicable terms and limits.
Why RBI Acted
RBI cancelled the licence of Sadhana Co-operative Bank Ltd. on 22 January 2009 because the bank had ceased to be solvent, earlier efforts to revive it in consultation with the Government of Maharashtra had failed, and the continued uncertainty was inconveniencing depositors. RBI noted that inspection findings showed deterioration in the bank’s financial position, that the bank’s position was precarious, and that its reply to the show-cause notice on why the licence should not be cancelled was unsatisfactory. The bank did not present any concrete revival plan or merger proposal. Consequent to the cancellation, RBI also requested winding-up proceedings and the bank was prohibited from carrying on banking business, including acceptance and repayment of deposits.
Operating Impact
The bank can no longer operate as a banking entity or accept/repay deposits, and liquidation proceedings are expected to begin. Depositors will be paid subject to the Deposit Insurance Scheme, with claims up to the prescribed ceiling and under usual conditions. The earlier Section 35A restrictions are superseded by the licence cancellation.
Regulatory Basis
- Section 5(b) of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies) (AACS)
- Section 35 A of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 22 Jan 2009
- Effective From
- 22 Jan 2009
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank