Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
11 Jan 2010
Case Brief
RBI cancelled the banking licence of Shri Laxmi Sahakari Bank Ltd., Sangamnagar (Khed), Satara after concluding that the bank had ceased to be solvent and that efforts to revive it had failed. The bank had earlier been placed under Section 35A directions restricting its operations from June 24, 2009, following a statutory inspection that showed its financial position was impaired. RBI had also issued a show-cause notice on September 2, 2009. After reviewing the response and finding no viable turnaround plan or realistic prospect of revival, RBI took the extreme step of cancelling the licence after close of business on January 5, 2010. The Registrar of Co-operative Societies, Maharashtra was requested to initiate winding-up and appoint a liquidator, and the release notes that depositors would be entitled to DICGC protection up to Rs.1,00,000 under the usual scheme conditions.
Why RBI Acted
Following statutory inspection, RBI found the bank's financial position impaired; directions under Section 35A of the Banking Regulation Act, 1949 (as applicable to co-operative societies) had already restricted its operations from June 24, 2009. RBI issued a show-cause notice on September 2, 2009 asking why the licence should not be cancelled. After examining the reply, RBI concluded the bank had ceased to be solvent, all revival efforts in consultation with the Government of Maharashtra had failed, there was no viable revival plan, and the likelihood of recovery was remote. In the interest of depositors, RBI cancelled the bank's licence after close of business on January 5, 2010 and requested the Registrar of Co-operative Societies, Maharashtra to initiate winding-up and appoint a liquidator.
Operating Impact
The bank can no longer carry on banking business, including accepting or repaying deposits. Liquidation proceedings are to follow, and depositors will be paid subject to the Deposit Insurance Scheme up to the applicable ceiling; other banking stakeholders are affected by the winding-up process. The cancellation takes effect after close of business on January 5, 2010.
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
- 5 Jan 2010
- Effective From
- 5 Jan 2010
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank