Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
5 Feb 2008
Case Brief
The Reserve Bank of India cancelled the licence of Shree Janata Sahakara Bank Ltd., Radhanpur (Gujarat) after concluding that the bank had ceased to be solvent and that attempts to revive it had failed. RBI noted that the bank's financial position had deteriorated further, its net worth had become negative, and merger efforts with another sound bank were unsuccessful. The cancellation followed a show-cause notice issued under Section 22 of the Banking Regulation Act, 1949 (as applicable to co-operative societies), which RBI found unsatisfactory after examining the reply and all other revival options. RBI also requested the Registrar of Co-operative Societies, Gujarat to initiate winding up and appoint a liquidator. Consequent to cancellation, the bank is prohibited from carrying on banking business, including acceptance and repayment of deposits.
Why RBI Acted
RBI cancelled the banking licence of Shree Janata Sahakara Bank Ltd., Radhanpur (Gujarat) because the bank had ceased to be solvent, its financial position had further deteriorated, and the realisable value of its capital and reserves had become negative. The bank had earlier been placed under Section 35A directions due to liquidity problems and high NPAs, including a ceiling on repayment of deposits. After a statutory inspection as of March 31, 2006 and a subsequent inspection as of March 31, 2007, RBI found the bank's condition had worsened, its reply to the show-cause notice was unacceptable, merger efforts failed, and there was no viable revival plan. RBI therefore cancelled the licence under Section 22 of the Banking Regulation Act, 1949 (as applicable to co-operative societies), and requested winding up and appointment of a liquidator.
Operating Impact
The bank can no longer conduct banking business or handle deposits, and liquidation proceedings are to begin. Depositors will be covered up to the insured limit under DICGC, with claims to be processed as part of winding up. The earlier Section 35A deposit repayment ceiling is superseded by the licence cancellation and liquidation process.
Regulatory Basis
- Section 35A of the Banking Regulation Act 1949 (As Applicable to Cooperative Societies)
- Section 22 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
- 31 Jan 2008
- Effective From
- 31 Jan 2008
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank