Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
11 Dec 2008
Case Brief
The Reserve Bank of India cancelled the licence of Siddhpur Commercial Co-operative Bank Ltd., Siddhpur, Gujarat, after determining that the bank had ceased to be solvent and that its revival was not feasible. Earlier statutory inspections had shown an impaired and worsening financial position, and RBI had already imposed Section 35A restrictions from August 21, 2008. Following the bank's unsatisfactory response to the show-cause notice and the absence of any viable turnaround proposal, RBI cancelled the licence and requested the Registrar of Co-operative Societies, Gujarat to initiate winding-up proceedings and appoint a liquidator. The bank is thereafter barred from conducting banking business, including accepting and repaying deposits, and depositors' claims are to be handled under the DICGC framework subject to applicable terms and limits.
Why RBI Acted
RBI cancelled the banking licence of Siddhpur Commercial Co-operative Bank Ltd., Siddhpur after finding that the bank had ceased to be solvent. Statutory inspections as of March 31, 2006, March 31, 2007 and March 31, 2008 showed that the bank's financial position was impaired and then deteriorated further. RBI had already issued directions under Section 35A of the Banking Regulation Act, 1949 restricting operations from the close of business on August 21, 2008 for six months, but the bank did not submit any viable plan of action for revival. After examining the bank's reply to the show-cause notice, RBI concluded that revival was remote and took the extreme step of cancelling the licence and initiating liquidation.
Operating Impact
The bank cannot carry on banking business anymore, including accepting or repaying deposits. Liquidation proceedings will follow, and depositors will be paid subject to DICGC insurance limits and applicable terms; other stakeholders are affected through the winding-up process.
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
- 10 Dec 2008
- Effective From
- 10 Dec 2008
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank