Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
21 Apr 2011
Case Brief
The Reserve Bank of India cancelled the licence of Shri Balaji Co-operative Bank Ltd., Nashik, Maharashtra, stating that the bank had ceased to be solvent, revival efforts had failed, and depositors were facing continued uncertainty. RBI noted serious deterioration in the bank’s financial condition, including negative CRAR, negative net worth, heavy erosion of deposits, very high NPAs, and defaults in maintaining CRR and SLR. The bank was also found non-compliant with several provisions of the Banking Regulation Act, 1949 (as applicable to co-operative societies), and had not taken adequate steps to recover NPAs or submit a satisfactory merger proposal. RBI had earlier placed the bank under Section 35A directions and issued a show-cause notice, but found the reply unsatisfactory and proceeded with licence cancellation. The Registrar of Co-operative Societies, Maharashtra was requested to initiate winding up and appoint a liquidator. Consequent to cancellation, the bank cannot conduct banking business, including acceptance and repayment of deposits, and depositors’ claims will be addressed through liquidation and the DICGC framework, subject to applicable terms and limits.
Why RBI Acted
RBI cancelled the licence of Shri Balaji Co-operative Bank Ltd., Nashik, Maharashtra after concluding that the bank had ceased to be solvent and that efforts to revive it had failed. The release cites severe deterioration in financial position, including negative CRAR, negative net worth, erosion of deposits, very high NPAs, and defaults in maintaining CRR and SLR. The bank had also failed to comply with provisions of Sections 11(1), 18, 22(3)(a) and (b), and 24 of the Banking Regulation Act, 1949 (as applicable to co-operative societies), and had not taken effective recovery action or provided a concrete merger proposal. RBI therefore treated the continued operation of the bank as detrimental to depositors and cancelled the licence in the interest of depositors, with liquidation to follow.
Operating Impact
The bank must stop all banking operations, including accepting or repaying deposits, and liquidation proceedings are to start. Depositors will have claims processed in liquidation, with DICGC coverage up to the statutory ceiling; the bank’s customers and counterparties are directly affected by the cessation of business.
Regulatory Basis
- Section 35 A of the Banking Regulation Act, 1949 (AACS)
- Sections 11(1), 18, 22(3)(a) & (b) and 24 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
- 7 Apr 2011
- Effective From
- 7 Apr 2011
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank