Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
8 Jun 2005
Case Brief
The Reserve Bank of India cancelled the licence granted to Shri Swaminarayan Co-operative Bank Ltd., Vadodara, Gujarat on June 2, 2005. RBI said the cancellation was due to the bank having ceased to be solvent. The release adds that earlier inspections had revealed serious deficiencies in the bank's working, including insolvency, negative net worth, negative CRAR, high NPAs and erosion of deposits. The bank had already been placed under Section 35A directions in December 2003, which precluded it from incurring fresh liabilities and restricted repayment of deposits above Rs. 1,000. Despite those directions, the bank did not improve; its reply to the subsequent show-cause notice was not satisfactory. RBI requested the Registrar of Co-operative Societies, Gujarat to initiate winding up and appoint a liquidator. Following 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 Shri Swaminarayan Co-operative Bank Ltd., Vadodara, Gujarat on June 2, 2005 because the bank had ceased to be solvent. The release says earlier inspections revealed serious deficiencies in the bank's working; the bank had become insolvent with negative net worth, negative CRAR, high NPAs and significant erosion of deposits. After directions under Section 35A of the Banking Regulation Act were issued on December 16, 2003 restricting fresh liabilities and repayment of deposits above Rs. 1,000, the bank still did not improve. A subsequent inspection as on June 30, 2004 showed its financial position remained precarious, and the bank's response to the show-cause notice asking why its licence should not be cancelled was found unsatisfactory.
Operating Impact
The bank must cease banking business and move into liquidation proceedings. Depositors will rely on DICGC coverage up to Rs. 1,00,000, and the liquidator is to send depositor claims to DICGC expeditiously. The restriction on the bank is final unless altered through the liquidation process; depositors may approach RBI Ahmedabad for clarification.
Regulatory Basis
- Section 35A of the Banking Regulation Act
- Section 5(b) of the Act ibid
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 2 Jun 2005
- Effective From
- 2 Jun 2005
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank