Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
13 Sept 2005
Case Brief
The Reserve Bank of India cancelled the licence of Shri Vitrag Co-operative Bank Ltd., Surat, Gujarat, on September 1, 2005, because the bank had ceased to be solvent. RBI said inspections had revealed serious deficiencies, including negative net worth, negative CRAR, high NPAs, erosion of deposits, and multiple violations of RBI guidelines and directives. After an unsatisfactory reply to a show-cause notice, RBI took the extreme step of cancelling the licence and requisitioned the Registrar of Co-operative Societies, Gujarat, to initiate winding up and appoint a liquidator. Following the cancellation, the bank was prohibited from carrying on banking business, including acceptance and repayment of deposits, and depositors would be entitled to insured repayment up to the DICGC ceiling through the liquidation process.
Why RBI Acted
RBI cancelled the licence granted to Shri Vitrag Co-operative Bank Ltd., Surat, Gujarat, after concluding that the bank had ceased to be solvent. The release says inspections revealed serious deficiencies in the bank's working, including negative net worth, negative CRAR, high NPAs, significant erosion of deposits, and violations of a number of RBI guidelines/directives. A show-cause notice was issued on February 4, 2005, and the reply dated May 20, 2005 was found unsatisfactory. RBI also requisitioned the Registrar of Co-operative Societies, Gujarat, to wind up the bank and appoint a liquidator.
Operating Impact
The bank can no longer conduct banking business, including accepting or repaying deposits. Liquidation proceedings are to be initiated, and depositors will be paid the insured amount up to the DICGC limit as the winding-up process moves forward.
Regulatory Basis
- Section 35A of the Banking Regulation Act, 1949 (As applicable to Co-operative banks)
- Section 5(b) of the Act ibid
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 1 Sept 2005
- Effective From
- 21 Oct 2004
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank