Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
9 Apr 2012
Case Brief
The Reserve Bank of India cancelled the banking licence of Shri Bhadran Mercantile Co-operative Bank Ltd., Bhadran (Gujarat) after determining that the bank had ceased to be solvent and that efforts to revive it had failed. RBI noted severe financial deterioration, including negative net worth, negative CRAR, high NPAs, and deposit erosion, and stated that the bank was not in a position to pay its present and future depositors. The bank had earlier been placed under restrictions under Section 36(1) and later under Section 35A directions, which were extended before the final cancellation. RBI also issued a show-cause notice under Section 22 of the Banking Regulation Act, 1949 (AACS); the bank admitted irregularities but did not provide any concrete revival or merger proposal. As a result, RBI concluded that the bank's continuation would further erode deposits and be against public interest, and it prohibited the bank from carrying on banking business. The Registrar of Co-operative Societies, Gujarat State was requested to initiate winding-up and appoint a liquidator, with DICGC-insured repayment to depositors to follow subject to scheme conditions.
Why RBI Acted
RBI cancelled the banking licence of Shri Bhadran Mercantile Co-operative Bank Ltd., Bhadran (Gujarat) after concluding that the bank had ceased to be solvent and its financial position had further deteriorated. The release cites weak financials, including negative net worth, negative CRAR, high gross NPAs, and deposit erosion, along with statutory violations and non-compliance with Sections 11(1), 22(3)(a) and 22(3)(b) of the Banking Regulation Act, 1949 (AACS). The bank admitted irregularities in response to the show-cause notice but did not provide a concrete revival plan or merger proposal. RBI stated that continuation of the bank would further erode deposits and be against public interest.
Operating Impact
The bank can no longer carry on banking business, and liquidation proceedings are to be initiated. Depositors will be paid insured amounts up to the DICGC ceiling subject to the scheme conditions, while any further recovery depends on the liquidation process. The restriction affects the bank, its depositors, and the winding-up/liquidation authorities.
Regulatory Basis
- Section 36(1) of the Banking Regulation Act, 1949 (AACS)
- Section 35 of the Banking Regulation Act, 1949 (AACS)
- Section 35A (1) of the Act ibid
- Section 22 of the Banking Regulation Act, 1949 (AACS)
- Section 11(1)
- Section 22 (3) (a)
- Section 22 (3) (b)
- Section 5(b) of the Banking Regulation Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 21 Mar 2012
- Effective From
- 26 Aug 2011
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank